In Praise of Jim

At the Vann Group we love Jim Collins. Some of our colleagues have gone so far as to call us "groupies" which makes us sound like we have pictures of the "Hedgehog Concept" in our lockers and send him our undergarments in the mail. We are not that crazy, but we are disciples of Collins and use both "Built to Last" and "Good to Great" as our Bible when it comes to building companies.

Consequently, Kevin and I were pretty excited on Thursday when we had the opportunity to hear Collins speak in person for the first time at the Turnaround Management Association (TMA) conference. While the conference was a disappointment, Collins was not. A very dynamic speaker, he was engaging and was able to relate his research to the challenges of the TMA. Some interesting points from his talk:

1. Many of the "Good to Great" companies went through a crisis which served as the turning point from bad or mediocre to good to eventually great. He likened this to a "freeze, unfreeze, freeze" moment where a crisis allows for great introspection/reflection and requires an organization to unfreeze from what it was doing in the past. With the new knowledge learned, it again freezes its frame of reference which serves as the foundation for its new approach. Interestingly enough, we've seen this with some of our clients who have started to make the leap.
   
2. His research found no correlation between executive compensation and shareholder returns. Excessive executive pay tends to lead to one thing: even more excessive pay, not increased shareholder value.
3. His team has argued quite a bit about the role of leadership in companies. His team proved that a certain type of leadership (Level 5) was prevalent in all the great companies. The myth of the celebrity CEO is shattered.

Overall, the talk was focused on the tenants of good to great and the need to put into practice its concepts of disciplined people, disciplined thought and disciplined actions. For those of you who haven't read and learned about Collins research I would urge you to do so. If you've already read him - read it again - I started this weekend.

Collins also began to discuss his current research, which hopefully will be published soon. He has two research projects underway and hopefully near completion. These are:

1. Companies that went from startup to greatness in environments characterized by turbulent disruption.
2. Companies that went from great to good. Why do some great companies fail and others do not.

As you can imagine, we are looking forward to reading about both as they are both extremely timely topics in todays world. Hurry up and publish Jim!

Lastly, as to the TMA conference, we were rather disappointed. First, we were surprised at how few had read Collins even though its been a bestseller for years. We were curious as to how these people could be in business and not have read the seminal business books of the last ten years? The only logic we could find is that turnaround people revel in the flip side. They seem to like it when the world or business has bad turns - guess its because that is how they make money!

We like to make money on th flip side as well, so we can fully appreciate that. However, we were also taken aback by the content of the conference. Each of the learning sessions were roundtable discussions and all seemed to be focused on the point of view of equity providers/financial lenders, etc rather than turnaround experts. We were hoping to hear about trends and new approaches to turnaround management. Instead we heard about the challenges of being in the second lien position when a company gets into trouble.

What we did learn was common sense. Apparently, its not good to be the lender when you are financing deals that are overvalued. But, its really bad to be in a position other than the first especially in the big deals that have been driving the private equity craze of late. It turns out that using creative types of financing, providing little in the way of covenants and then packaging the loans into smaller pieces is not a good way to ensure that a lender has influence over the direction of a company - especially when it hits a bump in the road. Fortunately, we already knew that. Maybe if these guys had read Collins they might have a little more insight into a company besides its credit rating.