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From The MNB Archives
Wednesday, July 25, 2012
by Kevin Coupe
Fast Company has a fascinating excerpt from a book by L. David Marquet, Captain, U.S. Navy (Retired), entitled "Turn The Ship Around!: How To Create Leadership At Every Level."
Essentially, the story recounts the moment when Marquet realized that the top-down management style typical of a nuclear submarine was flawed - he had been transferred to be captain of a submarine with which he was unfamiliar, gave an order to the Officer of the Deck (OOD), who immediately passed the order on to the helmsman. However, the helmsman was unable to carry out the order, because this particular sub was incapable of performing this maneuver.
When he asked the OOD why he had given the order to the helmsman, the response was simple and straightforward: "Because you told me to."
Marquet writes: "He was being perfectly honest. By giving that order, I took the crew right back to the top-down command and control leadership model. That my most senior, experienced OOD would repeat it was a giant wake-up call about the perils of that model for something as complicated as a submarine. What happens when the leader is wrong in a top-down culture? Everyone goes over the cliff. "
The problem, he writes, is that "we reward personality-centered leadership structures and accept the limitations." But that does not make it good leadership.
Marquet says that from this point on, it was his goal to create an organizational structure on the ships he commanded that would allow him to give as much control as possible to subordinates, on the theory that it would encourage them to learn how to make intelligent judgements and responsible, informed decisions. And the book suggests that if such a thing is possible on a nuclear submarine, it certainly is possible in a lot of businesses - and might be one way for troubled businesses with top-down structures to find a way to survive.
The Fast Company piece can be found here. It is, to say the least, an Eye-Opener.
Walmart and Target have come out against the $6 billion settlement of a price fixing lawsuit against Visa and MasterCard that dates back to 2005, having been brought against them by a wide range of retailers.
In doing so, the two big box retailers join the National Association of Convenience Stores (NACS) in opposing the settlement.
According to the Associated Press coverage, "Credit card companies have agreed to reduce swipe fees for eight months ... The temporary reprieve on fees is valued at $1.2 billion. The settlement does not apply to debit cards, which have grown in popularity for small-value transactions ... The pact, which is being called by lawyers involved in the case the largest antitrust settlement in US history, is seen as a major victory for merchants that have long complained about the billions of dollars in so-called 'swipe' or 'interchange' fees that they pay to banks for purchases made using plastic."
In opposing the deal, Walmart said that it does not prevent credit card issuers from "continually increasing hidden swipe fees, which already cost consumers tens of billions of dollars each year.
"The proposed settlement would require merchants to broadly waive their rights to take action against the credit card networks for detrimental conduct or acts. We encourage all merchants to put consumers first and reject the settlement."
Target also called the proposed settlement - which has to be approved by a judge - "bad for both retailers and consumers."
NACS has said that "this proposed settlement allows the card companies to continue to dictate the prices banks charge and the rules that constrain the market including for emerging payment methods, particularly mobile payments. Consumers and merchants ultimately will pay more as a result of this agreement — without any relief in sight.”
MasterCard spokesman James Issokson tells CNN that "the company recognizes that some merchants may have different opinions, [but that] 'the settlement represents a solution reached after years of litigation and months of negotiation'."
I'm not nearly smart enough to be able to make a definitive judgement on this issue, but my gut tells me that Walmart, Target and NACS are right on. First of all, the two big box stores and the convenience store association have little in common in terms of their business models, so they must be onto something. Plus, I'm suspicious of the banks for wanting to settle; I just don't trust them, and I suspect that the way the proposed deal is being described by the dissidents is pretty close to being the truth.
The problem, of course, is that what is happening now may be just what the banks would like to have happen - a splintering of the retail coalition that was remarkably cohesive up until now. Plus, there is enough talk from some retailers about charging consumers more for credit card transactions that it may create the impression - which the banks would love - that retailers are trying to gouge shoppers.
Retailers have to be careful on this. They've been on the side of shoppers all along, and they cannot and should not lose control of the narrative.
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Supervalu management yesterday circulated the following statement within the company:
"Nick Bertram, will join Jewel-Osco as senior vice president of Operations on July 30. Nick comes to Jewel-Osco from Walmart, where he most recently served as the Pennsylvania Regional Manager for the company with responsibility for 12 markets and 95 stores in one of Walmart’s most successful U.S. regions. Nick has been with Walmart since 2001, starting as a stocker and holding positions of increasing responsibility including store manager, regional operations support director, market (district) manager and more. He has a bachelor’s of business administration from Eastern Kentucky University and a MBA from the University of Phoenix."
Bringing in another person from Walmart may not go over well at the beleaguered Supervalu. One reader there told me, "It's all shocking. Everyday we're told to keep our heads down and work like we've never worked before and then you see this announcement on our internal message board ... I am starting to side with the conspiracy theorists. You would think, that of all companies, WM! would have a Non-Compete Policy for Directors and above. I know we have it at SVU. When Herkert came to us he didn't have much (if any) time off in between...coincidence???
"I'm sick about the loss of my company. As someone who's been fighting the good fight for 20+ years it's sad to see it go down this way..."
The conspiracy theory, in case you missed it, suggests that Walmart is sending all these people over to Supervalu to kill it off, and then will reward them with even better jobs and maybe even a parade in downtown Bentonville.
USA Today reports that the new City Target in downtown Chicago scheduled to open today will include a new feature for the chain - a Pret A Manger sandwich shop that "sells only preservative-free food, antibiotic-free meats, items made with cage-free eggs and even vegan salads."
The story goes on: "While the move, for the moment, is just a single store, it is bound to be watched by the major retail chains and by others in the better-for-you food business. At a time when obesity in the U.S. is at record levels and the mayor of New York wants to limit sugary drink sizes, any movement toward more nutritional offerings is certain to garner attention."
Target says there are no plans to open other Pret A Manger operations in other stores.
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The Los Angeles Times reports that CVS Caremark is teaming with the UCLA Health System to "treat patients in 11 in-store clinics in Los Angeles County as one remedy to a growing shortage of primary care physicians. Under this arrangement, UCLA physicians will serve as medical directors overseeing 11 CVS MinuteClinics and the two entities will share electronic medical records."
According to the story, CVS "will pay the UCLA doctors a fee for their role as medical directors, reviewing patient charts and consulting by phone if a nurse practitioner has questions. The doctors don't work at the clinics. CVS will refer patients needing more specialty care or a permanent primary care physician to other local medical providers, including those at UCLA."
David Feinberg, president of UCLA Health System, said that one of the reason that UCLA Health System decided to partner with CVS was because when he asked around, he found that many of the people on his executive team were using in-store clinics to deal with routine illnesses and vaccinations.
Smart move, because it further cements the notion that this is a quality option to traditional doctor and/or hospital visits.
The Food Marketing Institute (FMI), National Grocers Association (NGA), and the National Association of Convenience Stores (NACS) have all gone on the record in support of the Common Sense Nutrition Disclosure Act of 2012, described as "bi-partisan legislation that will prevent the FDA from exceeding its authority under section 4205 of the Patient Protection and Affordable Care Act," and protecting "grocery stores from being subjected to unnecessary regulatory burdens and costs" by allowing them to be exempted from menu labeling provisions in the act.
The bill was introduced yesterday by Rep. John Carter (R-TX), Rep. Henry Cuellar (D-TX) and 18 additional co-sponsors from both sides of the aisle.
“We support Congressman Carter’s efforts and applaud such a diverse, bipartisan backing of this bill,” said Texas food retailer H-E-B’s Director of Public Affairs Dya Campos. “Food retailers have a deep commitment to the health of their customers, but with FDA’s proposed interpretation, we’d be forced to be formulaic with our recipes, which is not what our customers typically expect from among our fresh, in-store-made options.”
"NGA commends Representative Carter for his leadership to ensure that the FDA does not exceed its authority under the statute by expanding this provision beyond chain restaurants," stated NGA President and CEO Peter J. Larkin. "This legislation will ensure independent retail grocers are not subjected to millions of dollars in new and unnecessary expenses and administrative burdens because of regulatory overreach. NGA's members are focused on growing their businesses and creating jobs at a time when our country desperately needs both. This bill will ensure that the FDA adheres to Congress' original intent, which did not include grocery stores."
"This legislation will allow the Food & Drug Administration (FDA) to satisfy Congress’s objectives without unnecessarily burdening most convenience stores,” said Norfolk, Va.-based Miller Oil Co. President Jeff Miller, representing NACS at a Washington press conference.
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...with brief, occasional, italicized and sometimes gratuitous commentary...
• Supervalu-owned Shaw's Supermarkets announced that "two of its Rhode Island locations reached a major environmental milestone in the company’s “zero waste” program. By diverting more than 90 percent of store waste from local landfills, the Barrington and Cranston locations become the latest stores to reach this significant achievement in the Shaw’s zero waste program.
"Accomplished through an innovative approach to recycling, organic composting and food donations, the goal of the Shaw’s zero waste program is to eliminate landfill waste from operations. Each store now maximizes recycling, food donations, organic composting and overall waste reduction so less trash is placed in local landfills. Additionally, every Shaw’s location is diverting all of its organic materials, soft plastics, hard plastics, and all of its paper and cardboard."
• Twin Cities Business reports that Supervalu is not the only troubled retailer handing out retention bonuses to senior executives.
The story says that "Best Buy Company, Inc., doled out $2 million in cash, and stock awards valued at roughly $8 million, to four executives. The electronics retailer, which has seen a recent exodus of key leaders and is now searching for a permanent CEO, said in a regulatory filing that the awards are 'necessary to enable a stable CEO transition and appropriate continuity of leadership'."
Must be something in the Minnesota water causing delusions of grandeur and simultaneous tone-deafness.
• Scott Thompson, who served as CEO of Yahoo for four months before being ousted when it was discovered that his resume contained inflated academic credentials, has landed a new job - CEO of ShopRunner, the online service designed to allow a variety of retailers to compete with Amazon.com's Prime marketing and expedited delivery service.
Two major television stars from the seventies and eighties passed away yesterday...
• Chad Everett, who starred in "Medical Center" for seven years, a series that at the time was tied with "Marcus Welby, MD" for the longest-running medical drama, died yesterday at age 75 after an 18-month battle with lung cancer.
• And Sherman Hemsley, who moved on up from a guest starring role as next-door neighbor George Jefferson on "All in the Family" to the leading role in his own sitcom, "The Jeffersons," died yesterday at age 74. No cause was given by police in El Paso, Texas, where he had been living.
Yesterday, we reported how a week after Supervalu suspended its dividend and said it was considering a sale, its board of directors gave stock options and retention bonuses to top executives.
To say the least, I was outraged by this. You can read my rant here , in case you missed it and are interested.
Got a lot of email about this. Exactly one person thought I was off-base:
Those SV "bonus" are stock options. The stock's value must rise to pay anybody a reward. How could being motivated to increase SV stock value be wrong?
I get your point. But these execs already have stock and options, and I think that under the circumstances, those should have been enough to get them to stay and do their jobs.
Here are some of the rest of the emails.
One MNB user wrote:
Not surprised to hear of the retention bonuses at Supervalu. I thought that might happen when they announced their earnings and search for 'strategic alternatives' a few weeks ago. It's a shame what has happened to what was a fine company. Being one of the 800 who lost their jobs in March I experienced the downward spiral and it is a relief to no longer be there.
The Leadership Development and Complesation Committee has also approved a $75,000 increase in base salary for Mr. Herkert for Fiscal 13. Although this is his first pay increase since he was hired three years ago it is still 8.8%. Additionally, it appears that lower levels of performance were needed in F'12 vs. F'11 in EPS and Cash Flow to receive incentive pay. This resulted in a non-equity incentive plan compensation of $364,395 for Mr. Herkert in Fiscal 12 and a total of $660,882 for the other four named executive officers - Ms. Smith, Ms. Haugarth, Mr. Van Helden (who has left the company) and Mr. Herring. There was no non-equity incentive plan compensation in Fiscal 2011.
Eight directors were of the board in both 2007 and 2012. On average these eight directors have increased their cash compensation by 83% and their total compensation by 37% in these 5 years. In the same time $100 invested in Supervalu in February 23, 2007 with dividend reinvestment was worth 20.90 in February 24, 2012 (when the stock closed at $6.65, not the $2.21 it is trading at today). This compares with a peer group figure of $124.69 for $100 invested for the same time period.
And just a few years ago Supervalu was saying they are "focused on creating a company that is the best place to work, best place to shop and the best place to invest in our industry".
From one reader:
This email is a first....I have never written to any publication to comment on an article, but your comments on Supervalu finally drove me to it. All I can say about your comments is thank you for saying what most people can never say in publicly or in print about Board members and senior management of company's who are completely out of touch and a pack of idiots. I laughed out loud when I read your comment, "You gotta be freakin' kidding me!" It continued when you commented about how tone deaf management is at Supervalu. On top of the ridiculous retention bonus the board gave them, every recipient also has a very nice golden parachute when the company is eventually sold. And I am sure the stock options all vest on a change of control when the business is sold. Double dipping I believe is the term.
I may not agree with you on every thing but I respect your willingness to tell it as you see it.
Keep it up. I wish everyone was as honest with their real opinions.
Another reader wrote:
This decision by the board at Supervalu is even more evidence that CEO's are not even trying to hide the fact that we live in a two-tier society in America. This is corporate welfare at its worst! Can you imagine the New York Mets paying a player past his prime because they want to "retain and motivate" him? Why is the standard in corporate America so different than the standard for their frontline workers, the ones who helped them get wealthy?
Giving bonuses to executives who tank a company is the norm in american corporations! Do you think those same corporate execs complain about the lazy people who collect unemployment, or, eventually welfare?
From another reader, a former Fleming executive:
You have never been more correct. As a former Fleming associate, this is the same way Fleming acted. The board should be held accountable for these actions. The CEO should be fired now, not later.
One MNB user wrote:
I loved your response to the SV board. I have to add – what a great plan…let’s reward the managers leading us to our demise…are they hiring?
The worst news is the board is as badly detached from reality as the operational leadership.
Bye Bye Supervalu...too bad they were always great people to deal with.
From yet another MNB reader:
You Go Guy! Why is it that the so called “Leaders” at the top don’t share in the sacrifice asked of the entire organization to help turn a company around. What ever happened to lead by example, and “Follow Me”. Are those days gone?
Another MNB user offered:
I have been at Supervalu for 15 years. I saw the announcement about the retention bonuses for the top 4. It has created a negative buzz like I haven't seen here in awhile.
My take on it - I think it is criminal. Another example of an incestuous board taking care of their own at the expense of stockholders and employees. I tell you one thing - many of us would love to have those jobs at half the salary - I bet we would give it more than what we see at the top now.
I worked for a banner of Supervalu for over 30 years and was unceremoniously released last year. I have been reading their downward spiraling issues with a half-smile since. But they have now gone completely over to the dark side. As was the case when the automotive companies executives took bonuses from the government bail-outs, the timing couldn’t be worse and the reasons are absurd. This reeks of a fait accompli. The friends I have that still work there will continue to show up and do their jobs (as you predicted) because they have pride and need their paychecks. But, if anyone thought morale could not get worse – guess what?
From still another reader:
Executives are very much in tune with the plight of their front line employees and their stores…and they don’t care!
Look at the difference between executive pay and front line pay over the last 30 years…bifurcation between privileged and under-privileged.
Look at the (lack of)respect executives have for front line people…this is not just a Supervalu issue.
Look at the (lack of) respect for shoppers…service…quality of products…toxic products…profits before people.
Gobsmacked?…You have been tracking these trends for some time…detailing specific examples of company after company…how can you be surprised?
Greed…class warfare…win/lose not win/win…climb the ladder then pull the ladder up…glass ceiling…these are all issues you have written about…how can you be surprised at SuperValu?
Executives get into the corner office, and all of a sudden they forget about the frontline people that worked their Butts off to get them there…they think their success was a result of their brilliant ideas!!
SuperValu is just doing the same thing as most businesses (there are exceptions, but they are rare)
Keep hammering these issues…the industry needs your slice of reality!!!
I guess I was surprised because I could not imagine that leadership and the board would be so ignorant of how their people feel.
And another email:
Your comment “You Gotta be freakin’ kidding me!” is absolutely correct. Wow, this just shows the stupidity of the people running the company as the employees should be very upset as many of them have been laid off. If upper management would have forfeited their bonus then they could get some respect from the employees but that just went out of the window. I hope the stock holders see this and demand that Craig resign. On the street Supervalu is called Stupidvalu.
I totally agree with your spirited rant about the executive retention packages. And then it suddenly hit me: SVU: It’s (Law and Order’s) Special Victims Unit, for victims of ‘heinous crimes’. Coincidence?
Not only will they throw a parade for Herkert, they will hire him back in Bentonville - He will become the president of Walmart Neighborhood Markets Southern California, formerly known as Albertsons Southern California. Makes sense, it is a huge population base that is underserved by Walmart, and a 45,000 sq. ft. Albertsons SoCal Store would look pretty good as a Neighborhood Market.
And yet another:
What it comes down to is its all about GREED, and that's a shame. They just put an arrow in every employee who doesn't get the bonus. The down fall will escalate now. The real shame is, they don't even recognize the mistake, how perverse!
Funny how the options fully vest (July 2014) before a major ($490m) note is due (Nov. 2014) and then the colossal ($1.0B) note that is due May 2016. Somewhere around that timeframe (but after July 2014 of course) seems to be when the ship will officially sink…..
Still another MNB user chimed in:
All of a sudden they want to retain? A whole flock already went out the door (legacy SV) and we’re left with this bunch. I’m not one to forward internal emails directly, but I’ll tell you when I read that one about the stock options I could’ve used some Pepto-Bismol. I often wonder if a certain party was sent here like a Trojan horse. There are good and dedicated employees who, as you said, will continue to do their best. Some of us still have our work ethic, pride, etc. , despite the constant distractions. Corporate America is, in general, an embarrassment. GREED, corruption, misuse of power, screwing people out of pensions, and what’s the punishment? Top executive buyouts and rewarding bad behavior. This isn’t a new problem, it’s just gotten out of control. There are no consequences that have any bite.
The sad news today about the retention bonuses for the Supervalu execs is not surprising. With the same issue taking place at Best Buy, outsiders must wonder what is "in the water" in Minnesota.
The big issue that rankles the average worker is how these poorly performing execs continue to get re-hired. I am an ex Supervalu employee who became obsolete like the coffee/plates etc. To bad these folks do not see the heartache and pain they cause in the MANY lives of good people who work hard to make the company successful.
Supervalu is far beyond "dead company walking" but one has to wonder how these people sleep at night. Worst part is they will be (mis) managing another company in the future.
Just one more...
This brings to mind a quote from a Spenser novel, I believe it was “Bad Business." In one chapter, Spenser asks his CPA if a Board of Directors isn’t supposed to watch over and approve major moves by management, and his CPA replied, “From what I’ve seen they’d support mandatory pederasty if urged by top management.”
Gotta love Parker, he had a way of cutting through the nonsense.
Yes, he did.
I'm sure there will be more on this tomorrow....
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