Movies

The movie industry had developed a profitable niche from the sales of DVDs. Unlike movies in the theater (where revenues are split with the theater) or on television (where revenue is split with the network or cable), DVD sales were very profitable because reproduction costs were small and the studios did not need to share the revenue with others. But this revenue stream has been impacted for two reasons, both based on technology.

An increasing number of DVDs have been replaced by streaming video over the Internet, made possible by today’s higher bandwidth networks. One sign of this change was Blockbuster filing for bankruptcy April 26, 2011, after years of declining sales. Another is the much smaller displays of movies at places such as Costco.

The technology also has affected the business model for movies in another way: The Internet has opened up the piracy market. First-run movies are copied with hand-held devices at the theater, and quickly find their way to the Internet. Pirated versions of films are produced through sophisticated manufacturing systems based in countries with weak piracy enforcement. Professional packaging, made to look real through publishing technology, makes these copies look official.

There is no obvious replacement source for this lost revenue for the movie industry. This was the discussion topic in our Conversation with Darcy Antonellis, president of Warner Brothers Technology Division.

News Through Television and Newspapers

The business model for delivering news through television, and similarly through newspapers, used to be fairly simple. Professional journalists would gather the news, and its publication would be supported by advertising revenue. The sources were limited. On television in America there were up to 13 channels, with news coverage focused on the three major networks, plus a public network. In Europe the choices were even less. Similarly, each town of almost any size had its own newspaper. As with television, news was gathered by professional journalists, and they were supported by advertising in the newspaper.

Again, technology has changed the model. The number of sources for news has increased dramatically. For television, the 13 channels have grown to hundreds. For newspapers, the sources have grown to every blogger and every website. This dramatic increase in sources undermines the revenue model for each individual source.

But the business challenge is much greater. When television and newspaper content can be viewed online when the customer wants to see it rather than when the provider chooses to display it, there is a demand for much more frequent updates. In competing to “get there first,” there is a danger of undermining trust by failing to fully validate the information. Further, the consumer can ignore the ads, “fast forwarding” through television commercials.

This leaves many questions. What does this mean for the business model for news? And what does it mean for a society when people pick the sources they agree with rather than get exposed to a broad cross-section of viewpoints? This was the subject of the discussion with Rome Hartman, producer of Rock Center with Brian Williams on NBC, and former producer of BBC America and 60 Minutes.

Books

Similarly, the business model for books is under siege by technology on many fronts. Who needs a bookstore if we can order books online? Who needs a physical book if we can download an e-book? Who needs a publisher if anyone can self publish? Will people even read books if their attention span continues to shorten due to expectations created from the Internet?

We discussed these issues with Tami Heim, former president of the now defunct Borders Books.

Music

When Napster created its file sharing capability in 1999, people began to freely exchange music. Copyrights were ignored. Though legal challenges effectively halted Napster in its early form, the music business has not been the same since. The role of the music store was rocked much like the other industries we have discussed. Self-publishing available through YouTube raised the question of the role of the record label. Apple came along with its iTunes model and created some semblance of stability for the distribution of music. But since an artist must sell songs one at a time, rather than packaged in an album, the music industry remains a fraction of what it was pre-Napster. Roger Eigsti commented on this in his NewsNotables column.

Other Industries

If technology can so change the business model in these information-rich industries, what about other industries? Many could be considered, but let me briefly comment on two quite different “businesses” that fundamentally depend on the dissemination of information: education and banking.

Education

Mortimer Adler, a 20th century professor, philosopher, and writer famously said, “A lecture has been well described as the process whereby the notes of the teacher become the notes of the student without passing through the mind of either.” There may be no better description of a process that can better be accomplished through technology! Who needs the professor, the classroom, and the high tuition costs?

When this is the way education is carried out, then online education is probably the better answer.

And it is not just the process, but also the outcome. If the net value of an education is a piece of paper signifying a degree granted, and if the goal of a degree is to get the job requiring a degree, then this is the natural direction. Because many professors deliver content as described, and many students only want the paper for the job, we can expect education to pass through the kind of turbulence that we saw in the media world.

But education is much more than this. The relational content of education cannot be duplicated online, at least not yet and not fully. And the purpose of an education is greater than the piece of paper. A good education prepares the student for a lifetime of learning, not simply for a job. Universities will continue to redefine themselves, and student expectations will continue to be developed. But as long as tuition continues to escalate, pressures will grow on education.

Banking

Banks continue to use technology themselves, encouraging more online banking, discouraging customer contact. I well remember when my daughter’s bank offered her an account that would encourage her online use by penalizing her if she talked with a person in the bank. With this direction, however, banks must recognize that when banking is completely impersonal and online, then any bank will do and price is all that matters. Consolidation will continue.

Isn’t banking, after all, simple about the transfer of money, and isn’t money simply another form of information? Is there a role for relationships in banking, or is that merely a vision of the past, of movies like It’s a Wonderful Life?

Gloria Nelund, the subject of our current Conversation, points out that banking is, or should be, much more than the information content. Relationships are needed to assess character, and character should be at the heart of who ought to receive a loan for growing a business. The push to only online banking may be efficient for the bank in the short run, but does it work for itself and for its community in the long run?

Conclusion

Perhaps the relational content of education and banking provide a different problem for these industries than for the media industries. Of course the media industries are also relational. But the business model for the distribution of content seems to have far less relational content in that particular area, and that has become the economic challenge. How industries that are doing more than distributing content, but have ignored that part of their business, will thrive through the technology age remains open to question. And I am certain that there are many more industries than banking and education that are now struggling with this.

I learned a lesson about computing in a business context a long time ago. It is not about automation, but about transformation. Neal Postman said, “When you add technology to a system, you don’t get the old system plus technology, you get a new system.” The more information rich an industry is, the more this distinction is apparent.

Leaders of industries need to continue to learn how to posture their businesses to address the changing requirements and needs of their customers. Technology adds a significant challenge to this requirement.

Al Erisman is executive editor of Ethix, which he co-founded in 1998.
He spent 32 years at The Boeing Company, the last 11 as director of technology.
He was selected as a senior technical fellow of The Boeing Company in 1990,
and received his Ph.D. in applied mathematics from Iowa State University.

Gloria Nelund is co-founder, chairman and CEO of TriLinc Global, a social impact investment company that she started in 2008.

Prior to this she had a career in the international asset management industry. Most recently, Gloria served as CEO of the U.S. Private Wealth Management Division at Deutsche Bank, the world’s fifth largest financial institution. In this capacity, Gloria held fiduciary responsibility for more than $50 billion in investment assets, including more than $20 billion in emerging markets and credit instruments.

In 1999, Nelund joined Scudder Kemper Investments, a firm that was soon after acquired by Deutsche Bank.

Prior to joining Scudder, Nelund spent 16 years as an executive at Bank of America/Security Pacific Bank, most notably as president and CEO of BofA Capital Management Inc., an investment management subsidiary managing $35 billion in assets for both retail and institutional investors. In addition to managing fixed-income and equity mutual funds in both the U.S. and internationally, her division was responsible for managing assets on behalf of public funds, common trust funds and corporate funds. She also spent five years as manager of Worldwide Sales and Marketing of BofA Global Asset Management and three years as CEO of InterCash Capital Advisors Inc., a $15 billion investment management subsidiary of Security Pacific Bank.

Nelund has been a pioneer in the development of social impact products for institutional and high-net-worth investors. While at Scudder, she supported the development and growth of one of the industry’s first socially responsible investment (SRI) fund products, which was subsequently sold to Legg Mason. In addition, she was instrumental in making Deutsche Bank a leading institutional supporter of microcredit, creating multiple programs for private wealth management clients to be educated about, and invest in the asset class.

In addition to her activities with TriLinc, Nelund acts as independent trustee for RS Investments, a mutual fund complex with more than $20 billion in assets under management. She is also a life-long supporter of development-oriented philanthropic causes. While at Deutsche Bank, she served on the Board of the Deutsche Bank Americas Community Reinvestment Board, with responsibility for providing loans, investments, and grants to targeted organizations throughout the U.S. and Latin America. She has also volunteered as a teacher of at-risk youth in the Los Angeles Unified School District and the YMCA of Los Angeles. Nelund currently sits on the board of multiple not-for-profit organizations and actively supports entrepreneurship research and education through the Massachusetts Institute of Technology, including as an MIT guest lecturer.

◊ ◊ ◊ ◊ ◊

This Conversation took place on September 19, 2011, at the TriLinc Global office in Manhattan Beach, California, and was updated in February 2012. Participating were Gloria Nelund, Al Erisman, and Gerard Beenen, assistant professor of management at California State University, Fullerton.

Ethix: What was your vision for starting TriLinc Global?

Gloria Nelund: We’re an investment management firm. We plan to attract private investor capital to create jobs for the middle class to help change the world. Our particular focus is on investing in small to medium-sized (5–250 employees) businesses in developing economies. Many of these businesses have no access to the capital needed to grow their businesses, and we fill that gap.

Seventy percent of new jobs worldwide come from small businesses. Small business is the key driver of growth in developed economies. In the U.S., about 67 percent of GDP has come from small businesses. Seventy percent of new jobs worldwide come from small businesses. And though we do a minority of our investing in underserved communities in the U.S., we focus on economies that can grow to the next level of development with a successful middle class. We believe this is the way to solve poverty in the long run and to create a sustainable world. Two thirds of the world’s population lives on less than $2 a day, and we need to engage these people in the development of their economies.

Dealing With Poverty Through Job Creation

Our particular target is a subset of those economies. The World Bank has divided the world into three economic categories: high income, middle income, and low income. Most of our preferred economies lie within the middle-income category where there is sufficient infrastructure and rule of law, but where small businesses struggle to obtain sufficient capital for growth. Surprisingly, these businesses have very little access to capital through their existing banking industries.

What are some examples of countries in your target range?

Within our target economies, we look for countries that meet our investment criteria and have established at least a moderate foundation for further economic growth. Because of that, when evaluating countries we analyze three core factors: growth, stability, and access. While it may appear obvious, a country that is already exhibiting growth (often due to positive demographic trends and/or the adoption of more productivity enhancing modern technologies) is better poised to make efficient use of the additional capital we provide. Without the rule of law (security, property rights, and a developed court system) even economies that are growing rapidly can be risky places to invest, so we avoid them. Finally, even the most ideal economies which have relatively strong legal systems and attractive growth dynamics will not work for us if access to local businesses is restricted by their home countries (i.e., capital controls).

In Latin America, for example, we find countries like Chile, Colombia, Peru, and Brazil to be attractive investment destinations where capital can make a big difference. In Asia, the southeast Asian countries, including Indonesia, Malaysia, Vietnam, and Thailand are attractive. In Africa, particularly Sub-Saharan, countries like South Africa, Botswana, and Ghana are on the list as well. These countries have reached a place in their development where they have successful small businesses that are struggling to continue their growth because they lack sufficient access to capital. With this access they could move to the next level, create more jobs, become bigger contributors to their communities, and help create a larger middle class.

But your list doesn’t include places like the Congo?

We have a disciplined process that we follow when selecting economies to invest in. As mentioned above, there must be the proper growth, stability, and access dynamics present in order for us to invest. Specifically, the Congo faces significant challenges, particularly pertaining to rule of law and ease of access for foreign capital.

Our investment strategy was specifically developed to meet the needs of a particular private investor so it’s important to understand the profile of our target investors. The investors in this retail fund are less willing to accept the level of risk inherent in the lowest income economies. Those economies require a different kind of development, which is simply not where we’re focused.

Good Returns, Global Good

Is your story to investors that you can do good in the world even though your rate of return will be less?
Investors in our funds won’t need to give up investment return to do good.
No. Investors in our funds won’t need to give up investment return to do good. By targeting credit-worthy small businesses in middle income countries, we believe we can offer competitive, stable returns for our investors. And in addition to that, we are going to measure and report the impact of our investments through the creation of jobs and other contributions to economic growth in the communities we serve. Like anywhere else, these companies are focused on generating profits and, if they are successful, will pay more taxes, ultimately resulting in improved infrastructure (roads, ports, power generation, etc.), more schools, better education, better health care, etc.

We also apply an environmental, social and governance (ESG) screen to our investments and provide capital only to those companies with sustainable business practices, including anti-child labor, fair treatment of workers, environmental sustainability, and the like. We know that we don’t have to sacrifice investment return in order to accomplish this. Our value proposition is that you can get a competitive investment return and help change the world.

Why did you start the company?

I wanted to be able to use all of my experience, my contacts, and everything that I’ve developed in my 30-year successful career on Wall Street to do good in the world. That’s the simple answer.

The bigger story is, I wanted to use the rest of my life to serve God. I used to always think that in order to really do that you had to be a missionary or a pastor or you had to do something that was extremely self-sacrificing. After I retired from Deutsche Bank, I went through a period of three years building my relationship with God trying to figure out what I should do with the rest of my life. I realized it is God who has given me all of these talents, skills, and resources, and frankly, I just wouldn’t be good at doing a lot of those other things. The best value that I can bring to the world right now is to deliberately use my talent, skills, and resources to help the world through business. I’ve come to a place in my life where I could feel good about resuming what I had done before, but decided I would rather apply all of that learning and those skills and those contacts to something that helps the world in this significant way.
The best value that I can bring to the world right now is to deliberately use my talent, skills, and resources to help the world through business.

U.S. Job Creation?

The middle class seems to be going away in the United States. Does your approach apply to addressing this issue as well?

That’s a great question and we’ve been asked that more and more lately. All of our funds will be global so they can be invested anywhere, including the U.S. While our primary focus is developing economies, where the opportunity and impact are often the greatest, the current condition of the U.S. banking sector has created an opportunity for us to invest locally in underserved communities.

What, in your view, are some of the things needed to create more middle class jobs in the U.S.?

I am very much a proponent of structures, whether it is tax incentives or regulatory structures that stimulate entrepreneurial small business. I find the current environment lacking in this respect. It goes back to why we’re focused on supporting small business in other countries. At the bottom of it, everybody is driven to want to take care of themselves and their families. People want to be successful and if they can generate something, then they’re going to do that. If you look at U.S. history, you see a story of entrepreneurs, people who come here to succeed because they want to do it for themselves. They don’t want government to do it for them.

My belief is that it’s better to create an environment where entrepreneurs are empowered to create their own success. That is not to say that we should be free from regulation or oversight. That’s not good either.

Every time I hear someone say we don’t need regulation, I suggest they try to set up a business in the Central African Republic.

Exactly. There’s a balance, and anytime you get out of balance it creates a problem.
That is a very good example.

With impact investing, you are measuring not just the money the investor can earn, but also the way this money supports communities. This seems consistent with a statement that Roger Lowenstein made about banks in his book The End of Wall Street: “The proper end of Wall Street is to oil the nation’s business; it became, in the bubble era, a goal in itself, a machine wired to inhuman perfection,” p. 297. How do you avoid the trap of starting with this outward objective and then falling back into the objective of making lots of money?

Balance is once again crucial here. For a business to sustain itself, it needs to be profitable. Thus, profitability is a critical driver of sustainability. The presence of a profit motive is not the problem. It’s when that is the only motive that problems arise.
For a business to sustain itself, it needs to be profitable.

Aren’t you creating a virtuous environment as well by putting pressure on your competitors to do the same?

Exactly. Even with our impact reports, we want complete transparency and accountability. We’re going to set the standard high so that anyone else who comes in will have to do likewise. We’re not saying we shouldn’t make money, because we should. It keeps us motivated and interested and pays our bills. But we have an objective beyond money. We look to serve our real purpose, which is to reduce global poverty and promote a more sustainable world by providing growth capital to responsible businesses. As TriLinc’s leader, I need to keep living up to that purpose of changing the world through capital resources.

How do you instill this into your team so this goal is not just dependent on you?

You ask a good question because I want this to outlast me. It’s got to be instilled in every person we hire. I’ve been very careful about the character of the people that we bring in. We’ve had the opportunity to bring in some very talented and experienced people who ultimately just wouldn’t represent us well. They could do the job, but at the end of the day there’s a cost to not having everybody absolutely committed to this purpose and cause. We talk about this all of the time. We do volunteer work together as a company to try to keep everybody focused on the goal of serving others.

Banks and the Economic Crisis

What role did banks play in the recent financial crisis?

There were many players that bear responsibility, including consumers, government, and financial institutions. Financial institutions were enablers because they lost sight of their historical role in an economy and focused exclusively on short-term profits. For example, in the subprime crisis financial institutions stopped asking the question: Can this individual or family genially afford to buy this house? At firms like Lehman Brothers, there was a mentality, an arrogance actually, which permeated from the top that they could not fail. I know the mentality was there. However, the blame does not lie exclusively there.
Financial institutions were enablers
Government supervision was also clearly lax. How many people in this country got loans they were not qualified to receive? Throughout the subprime crisis government officials refused to accept that home prices had reached unprecedented and unsustainable levels. Traditional restrictions like down payment levels of at least 20 percent were discarded. Government has the responsibility to review and to audit. They got away from that. They weren’t holding these financial institutions accountable.

Finally, there were the consumers who never should have borrowed. People should have been responsible to know they couldn’t afford the adjustable rate mortgages they were signing. For most mortgages, the terms are right up front, but even if they weren’t, the terms had to be disclosed somewhere and there is a responsibility to read what you sign.
There is a responsibility to read what you sign.

What about the “too big to fail”? Did the banks simply assume someone would bail them out if they overreached? Or was it pride?

Purely pride. I don’t think that any of the big banks, particularly Leman or Goldman, ever thought they would have to take money from the government. They just thought, “We’re smarter than others, smarter than the government, and we’ll never need help.” It must have been extremely humbling for them. As hard as it was, and still is, for our country, I think the government did the right thing to let Leman fail. I actually wish though that they would have also let some of the car companies fail and let AIG fail. Unfortunately, the banking system as a whole can’t be left to fail because if the flow of credit that greases the gears of an economy cease to function, so too will the economy as a whole. This is where I believe that government has a crucial role.

What role did Deutsche Bank play in the economic crisis?

I was gone before it all came apart, but I’ll answer without knowledge. What I believe is that Deutsche Bank played a similar role to many of the other big global investment banks: structuring and selling products like collateralized debt obligations (CDOs) backed by a pool of loans where the originator retained no risk on the loans they made. Where Deutsche Bank differed from most of them is that they don’t engage in consumer lending in the U.S. (including mortgages), so they actually didn’t directly participate in that part of the problem. However, while they didn’t play a role on the consumer lending side of the crisis they certainly played a role on the investment-banking side.

I really enjoyed working for Deutsche Bank and believe they’re a very good organization. There are a lot of really good people there. But they weren’t exempt from the “too big to fail” mentality, which comes from being a very successful investment banking firm for many years.

Banks and Recovery

What role do banks have in the recovery, given they had this role in the downturn?

Banks have a big role to play and they are not stepping up. You could argue that this is the case because they’re frayed, the government has put these new capital requirements on them, and it’s made it harder for them to lend. But I think the big banks have used that as an excuse. If you go back to a small town like I am from in Ohio, the banks lend more on character and good sense. They ask themselves: “Is this a good business? In this industry and this market, are people still buying these things?” Big banks turn these basic lending virtues into pure process. There is no judgment, so, character and common sense never get factored into the decision.
Banks have a big role to play [in the recovery] and they are not stepping up.
This is where community banks can be very successful. They can be in touch with the small businesses and consumers. Community banks can be in touch with small businesses and consumers in a way that the large banks are unable and unwilling to do so. That’s why small community banks do better than large banks when it comes to making loans. Unfortunately, all too often the pattern has been that large banks buy up community banks and turn them into pure process. Large banks would be better served to step back from that strategy and figure out how they can get back to making loans. They need to do their part to help stimulate the economy by lending to small businesses that deserve to have the opportunity. So many businesses have difficulty borrowing from banks today. If large banks can’t do it because their process is in the way, then they need to find another way to get it done.
Community banks can be in touch with small businesses and consumers in a way that the large banks are unable and unwilling to do so.

Do you think it would be possible to infuse that process with the common-sense things you mentioned?

Perhaps, but it would be tough. The key is to allow more local decision-making, and the big banks have completely gotten away from that. Everything has become centralized to minimize costs. A system of accountability is necessary, but they’ve got to go back to local decision-making. Presently, all of these banks, with perhaps the exception of Bank of America, have significant earnings and cash sitting on their balance sheets. They could use some of that to restructure things to allow some local decision-making. You don’t have to undo everything, just revise processes to better support local small businesses.

Technology Investments?

How does the common sense work in today’s more complex world? How would a bank know that investing in Facebook would be a good idea, for example?

I would say investing in technologies is a different thing. Technology investments are completely a venture play. They’re not a commercial-lending play. A small business that has capital flowing, a track record of growth, and a team with success that you can point to, that is where you should use common sense. I don’t think the venture world is where banks should be lending money. That’s for the venture capitalists who want to take that kind of risk and understand the risk they’re taking.

What about a technology company that has been in business for five years, making a profit, and trying to grow. Access to capital for this kind of company, because of the complexity of its products, is difficult to come by.

The closer any business is to consistently repeatable cash flows, which can be managed to maintain profitability and ensure loan repayment, the closer that business is to being a commercial lending play for a financial institution. To the extent that a technology company has these characteristics they would be good loan candidates. The more volatile a business’ cash flows, the less consistently profitable they frequently are. This is often the challenge for many technology companies. That being said, all companies (technology businesses included) would benefit from a more locally focused and less distant banking relationship.

I was recently reminded of the benefits of a locally focused and empowered bank. I grew up in a small town in Ohio where my Dad was an entrepreneur. He always did his banking at one bank. He had seven bank accounts jointly with other people who were not family because he had different businesses. When he died, my mother and I went to the bank to get his accounts changed, and the teller greeted my mother by name and said how sorry she was for my Dad’s death. Then she said, “I’ve already prepared all the documents for you to get everything changed.” My mom signed everything and then the lady at the bank said, “You’ve got these three accounts with other people, two with Clyde, one with John. I wanted to get your signature first to make sure this is how you wanted to do it and then I will talk with Clyde and John. They come in here all the time. I’ll just have them sign when they come in.” Clearly, I was definitely not in California!

Isn’t electronic banking working against that, since many people don’t even go into the bank anymore?

Right, it is more difficult. But even in a big bank there are definitely things you can do to facilitate more of a community sense at a certain level. This is an issue with any big company. The bigger you get, the harder it is to allow that sort of entrepreneurialism, which is needed for business to flourish.
The bigger you get, the harder it is to allow that sort of entrepreneurialism, which is needed for business to flourish.

I would love for somebody to do a study on big banks. If you look back 100 years, or at least in my lifetime, you would see cycles. Big banks acquire the little community banks and then there’s this growth of community banks. They get bought up and then you get big banks again. Perhaps in proving what drives these trends we could identify a better strategy.

Let’s pursue the subject of technology a bit more. Technology helps a lot of things, but it can obscure some things as well. It seems to me that a lot of the difficulties in banking came from complex deals that most people didn’t understand, the CDOs for example.

Yes, exactly. The people putting them together don’t understand the boundaries of the application, and many of the people making decisions about them don’t understand how they work. What do you do in an environment with these kinds of complexities that make it difficult to understand a product? You don’t make a decision. My view is if you’re going to accept the responsibility of being a leader then you have to accept the responsibility of understanding what you’re doing. It is not an acceptable excuse to say “I didn’t understand.”

If you don’t understand a deal then you shouldn’t sign it. Leaders have a much bigger responsibility. In accepting their role as a leader, they must know that one of the things that comes with that responsibility is the need to understand.
if you’re going to accept the responsibility of being a leader then you have to accept the responsibility of understanding what you’re doing

I sit on a mutual fund board for RS investments, a $22 billion mutual fund company. We have taken the position that we don’t want our fund managers to invest in anything that we can’t understand as a board. By having to explain it to us, we can have confidence that they understand it, and it will likely mean they can explain it to investors. Fortunately, we have a great advisor and our portfolio management teams are terrific. They agree that they shouldn’t be taking on risks that we don’t understand. There are so many new things coming up, and we feel that our job is to protect the shareholders. We need to take that job seriously and understand what’s going on. More boards need to do this, and more management teams need to do this, especially in the investment world.
we don’t want our fund managers to invest in anything that we can’t understand as a board.

How widely do you think this practice is followed?

Not very, I’m afraid. I am not naïve.

Are you saying there’s a responsibility for continuous learning on these boards to maintain currency and understand the complexity of the sophisticated instruments?

Definitely. If that had been the case in the past, then many of the deals that got us into the financial crisis would not have been done. I think greed and ignorance both got in the way. In a similar way, more customers should take responsibility for their own financial actions and not do things they don’t understand.

Bank Responsibility

What obligation does a bank have when they see a customer about to make a purchase that they don’t understand?

Banks have a fiduciary responsibility to tell people the risks. If they see them doing something they think they shouldn’t do, then they should say don’t do this. The government needs our banking system to succeed. It should put banks in a different realm, if you will, than other companies. People rely on them, and assume their money is safe there. It should be safe. At the end of the day, transparency and accountability should be higher in banks than other organizations.

If the purpose of the bank is to make as much money as it can, then it may ignore some of these things. If there is a bigger purpose, then it’s going to be different. What do you believe is the purpose of a bank?

A bank’s role should be to facilitate the flow of capital within a country, and be a safe place for people and businesses to conduct financial transactions. That could be as simple as getting a loan, or it could be setting up a safe escrow between two parties. It could be where actual financial products get created. Most of the banks have as a purpose to facilitate financial transactions, capital market flows, and to protect money for people.

You have hit the nail on the head when you said they got away from that purpose and started focusing just on the needs of the shareholders which translates to making profits.I read a really great book recently, Managing Stakeholders. It talks about balancing the needs of all your stakeholders, not just your shareholders. That includes your employees, your customers, and your vendors. You need to balance all of those successfully. This should be true for any company, but especially for banks.

One banker I talked to recently said the elimination of Glass-Steagall, which had separated banks that could do lending and deposits from banks that did investments, was part of the problem. Eliminating Glass-Steagall enabled banks to decide they could make more money by doing a particular investment than by making this community loan. The bottom line got in the way. What do you think?

I honestly don’t know but I certainly think it contributed. I know they took a long time to make that decision but the change came too hastily. It did allow banks to move away from their purpose of lending, but I don’t know if it was the cause. They did it so that banks could be more financially competitive with their non-bank counterparts, but who says they have to be financially competitive?

Gender Issues

Let’s talk about gender issues. There weren’t many women executives at Deutsche Bank when you were there. What are the challenges of being a woman in a man’s world?

I was the only woman among the top 200 executives in Deutsche bank. A couple times a year Deutsche bank would gather the top 200 executives in some part of the world to talk about the bigger strategic issues, how divisions were performing, etc. I had been to six or seven of these meetings when there was a woman speaker from one of the groups who gave a talk during the day. At lunch, she sat down next to me and said, “You’re the only woman here in this whole group. What is that like?” My response was, “I am?” Seriously it just hadn’t occurred to me. It wasn’t something I focused on. I was very used to working with men and so I’m very comfortable. It doesn’t matter whether they’re men or women. They’re just partners in this business that I’m in.

There was one time earlier in my career when I was a part of a larger staff of all men. When the conversation got heated, they would sometimes leave the room and go to the bathroom. When they returned they would have a solution to the issue we were dealing with. But they did this once too often. On the next occasion, I followed them into the men’s bathroom. They never did that again.

Often the woman is called upon to carry more of the burden for maintaining a balance between work and family. I was fortunate that my husband was willing to stay home and take care of our son and take care of our house. So I probably don’t have the same balance issues that other working moms have. That helped in some ways, but in other ways it probably enabled me to be a workaholic. I didn’t do a very good job of keeping that balance because I loved what I did, I loved to work.
Often the woman is called upon to carry more of the burden for maintaining a balance between work and family.

Research has shown that women are better at negotiating on behalf of others while men are better at getting something for themselves. How has that played out in your experience?

In my experience, that is absolutely true. I can negotiate anything, and fight for anything if it is for someone else; but for myself, I have a really hard time. As a result, I have been taken advantage of quite a bit, not just at Deutsche bank, but at other jobs. Since I’ve recognized that in myself I have had someone else do important negotiating for me, especially if the outcome had to do with me. I don’t buy cars, for example. I hire someone else to buy cars for me. I’m bad at it, but also I don’t like that experience.

Personal Story

Tell us how you got to Deutsche Bank and how you came to step away from your work there.

I had been working at Bank of America for many years, and had a very responsible position in Los Angeles. But I decided it was time to try something else. Shortly after I started looking, I received and accepted a four-month special assignment for Bank of America, and about two weeks into that assignment I received an offer from a boutique firm in New York, Scudder. I was excited about the offer, but told them I couldn’t start until I completed the assignment. They came back to me asking how much money it would take to start immediately. But I explained to them it was not a matter of money; it was a matter of keeping a commitment I had made. So I had to turn down the job. Ultimately, they decided to wait for me, so I finally escaped the big bank for a new start with Scudder.
I explained to them it was not a matter of money; it was a matter of keeping a commitment I had made
I wasn’t there long before Deutsche Bank bought out Scudder, and there I was back in the big bank world again. This created another complication. The job was based in New York, but we were living in Los Angeles. Because of our special needs child, we decided that it would not be good to uproot him from his location, so I commuted to New York for six and a half years. Every week I would get the “red eye” flight from Los Angeles to New York on Sunday night, arrive in New York and go to work for the week. I had an apartment there. Then on Friday night I would fly home for the weekend. If that wasn’t bad enough, every six weeks I had to be in London or Frankfurt because I was on the bank’s executive committee. It was a grueling schedule, and not possible without full engagement and support from my husband.

My expectation, after Scudder had been purchased was that I would be out of a job. But it turned out I was selected to integrate all of the private client businesses and create one private wealth management business from the original Deutsche Bank Private Bank, the Scudder Private Investment Counsel group, and two other acquisitions they had made: Bankers Trust and Alex Brown. We had four very different cultures and four very different businesses that needed to be integrated. When I took responsibility for this, we were losing $30 million a year. We had duplicate offices, duplicate systems and we were operating under a memo of understanding with the Fed for anti-money laundering violations. It was a mess.

In three and a half years we had consolidated a management team and completely turned it around to where we were on target at the end of the first quarter to hit our 25 percent profit margin. It was the biggest accomplishment of my career, and after a party at the Yale Club in Manhattan to celebrate our success, I went back to my apartment and I just had this emotional moment. I thought, “There’s got to be more to life than this.” I just had this most successful, pinnacle accomplishment but I realized I had no friends, I never saw my family, and I decided I just didn’t want to do this anymore. The next day I was heading to Florida and I picked up the book Halftime in the airport.
I just had this most successful, pinnacle accomplishment but I realized I had no friends, I never saw my family, and I decided I just didn’t want to do this anymore.
By the time I’d returned to New York, I’d finished the book. The challenge from it is to think about mid-life, not as a crisis, but as a “halftime.” Pull aside from the battle of the day and assess where you are, what you have done, and what you want to do for the next half. The book suggested not quitting your job until you have a plan, but I ignored that part.

Quitting the Job

I got on a plane that night, took a red eye to London, and the next day I met with my boss and said, “A year from now I don’t want to be doing this.” He tried to talk me out of it, and make some accommodations for a different type of schedule. But I said, “I just don’t want to do this anymore.” It was April, and I agreed to stay with it till the end of the year to support transition of responsibility.

To demonstrate just how out of balance my life was at this point. Not only did my husband not know I was in London; he had no idea I was quitting my job. It wasn’t until after the fact that I picked up the phone and called my husband. I wanted to find a way to break it to him, to make some excuse, but I simply said, “Honey, I’m in London. I just quit my job.” Thankfully, his response was “Oh, thank God. I’ve been praying that something would happen because this is just unbearable.” He saw what it was doing to me physically. It was the commute, the stress of the position, the family separation, everything.

Principles of Success

Right after that I was asked to give a talk to a group of younger women called Women on Wall Street. They had asked me before but I had always been too busy and was not sure, in any case, what I would say. But now I had no excuse, so I made up a list of things that I had done in my career that I felt were at the root of my success.

What was on that list?

1. Daily time with God. It is easy in the hectic pace of business, where you can easily get caught up in the trappings around you, to lose perspective. I find that I need to take time each day to get centered, to gain a larger perspective, and to reconnect with purpose and goals that are bigger than me.Many people think they are too busy to do this, but I have found it essential.
2. Never compromise my values. Business dealings represent a series of compromises. Negotiations, structuring a deal, creating an affordable product, meeting conflicting demands all call for tradeoffs. But I need to be rooted in a strong foundation of ethics where my word is my bond, where cutting corners is unacceptable, and I need to review this and act on this every day.
3. Always be fair. You can’t satisfy everybody all of the time. When somebody misses an assignment or makes a mistake, you have to deal with the situation. But how you deal with the people involved (both people you are close to and people who you don’t know) must be done in a way that a third party would acknowledge that this is fair.
4. Really care about people. In an organization where there are many people carrying out assignments, it is easy to focus on the utility of what the person does and lose sight of the person. Seeing each individual as a person, not an object, keeps reminding us that a person is more than his or her task.
5. Focus on outcomes. This is related to Stephen Covey’s “begin with the end in mind.” I keep reminding myself to pull back to the objective and what we are trying to accomplish. This keeps us from needless side ventures away from the main objective.
6. Own the responsibility. When I have been assigned a job to do, it is important to be responsible for seeing that it gets done. There will always be roadblocks, excuses, and things that come up along the way that make the task difficult. But it is my job to get it done, and I can’t allow other things to become the reason or excuse for not carrying through.
7. Work beyond expectations. I need to have a higher standard for myself than my boss or others have for me. It is not enough to get it done in the time allocated. I want to do better than expected, more than is expected, working to my capability. This includes offering insight beyond what is asked and not being satisfied to simply “answer the mail.”

Did you get into the role of women in business specifically?

During the question-and-answer session after the talk, one young Wall Street woman asked me, “If you had one piece of advice for us, what would it be?” I thought for a second and said “Find a really great husband.” The women seemed confused by my response, but I could never have done what I did without a really great husband, somebody supporting me, somebody taking care of everything at home and providing incredible emotional support. I probably didn’t appreciate it as much as I do now, but I have to say it’s what I know allowed me to be stable and just continue doing what I did.

Starting TriLinc

How did you decide to start TriLinc Global?

I mentioned earlier how I quit my job at Deutsche Bank. I took a couple of years off, away from business. I got reconnected with my family, and I looked at options. But it was clear I was not a stay-at-home person. I admire people who are, but it is not who I am. I found myself arranging the books, alphabetizing the medicine cabinet, and other things that drove my family, and me, nuts. I engaged in a study of the Bible, looking for career answers. I considered whether ministry or church work might be the best use of my time. But again, that was not me. I realized I was wired for business. When I was asked to serve on the board of RS Investments, I realized how much the financial services area was something I was wired to do. There were numerous opportunities to return to a big bank, and that would have been great. But through my study and time away I decided I wanted to do something where I could make an actual difference, and that is what led to starting TriLinc Global.

in the second half of my life I want to be more deliberate about what I’m doing, more careful.Another thing I learned, though, is in the second half of my life I want to be more deliberate about what I’m doing, more careful. That is not to say I don’t overwork and I don’t put as much energy and effort into this, but I do more things to be deliberate. Every day without fail, I take the first hour of my day to do my devotions and center myself. It helps me with my spiritual balance. It really helps me to stay grounded and to be more present. When I am at work I am very focused, but I also try to be focused at home. It requires a little more compartmentalizing in my life than I used to have, but helps in terms of having better balance.

Getting Into the Financial World

How did you get into the financial industry?

I went to University of Dayton to study elementary education. But while student teaching I realized that was not for me. I suppose the reason I started in that direction is because that is what women did in that era; they went into teaching or nursing.

So I had no idea what I was going to do when the mother of a friend of mine suggested I just get a job and try something. She was the HR director for the Third National Bank in Dayton, and I started at the bottom. My very first job was typing stock certificates and balancing shareholder records in the trust department of the bank. It’s hard to believe now, but in those days when people wanted to sell shares of stock, they would physically surrender their certificate, I would cancel it, enter the data on a card, and type up a new certificate. I found that this was kind of fun. I loved understanding the financial world and just kept taking on new tasks to learn more.

Early in my career, I adopted three principles that I would follow all of my life: I would work really hard; I would solve problems; and I would help people. The first meant that when I finished an assignment I would look for another one. I was always asking for more to do. It was much later in my career when I realized that not everybody did that! In the second one, I found that I enjoyed making processes efficient, finding a better way to do something. And in the third area, I found joy in making other people successful.
Early in my career, I adopted three: I would work really hard; I would solve problems; and I would help people
I kept taking on new jobs and, a year-and-a-half later in that particular bank, I was the head of operations. But this was a small bank and our entire trust department was only 25 people. Not long after that I was offered a head of operations position by a bank in California where just the team I would be managing was 300 people. I had only been to California once when I was 12, and I was intimidated by the size of the task, but with encouragement, I just went for it. And that got me started in the Bank of America system.

What clicked for you?

I really love to help other people be more successful. As a manager I always saw my job as helping anybody who worked for me be more successful at their job. I thought that was my role and I loved it when people would be successful or be promoted. I felt the same way about making our clients a success. I felt like that was our role as a bank. Interestingly, as a banking institution, I didn’t think we executed all that well. Individuals worked hard and did good things, but it didn’t always come together in the best way for the clients and employees. That was where solving problems became satisfying. And, it turned out that working hard, solving problems, and helping people just worked. I was always promoted or recruited so I never actually applied for any job I ever had.

Office Politics

What was the least satisfying?

Politics, game playing, backstabbing, all those bad things about people. Financial services may have a higher share of those people for some reason. It’s one of the reasons I wanted to get out of it at different times in my career, because I thought we were not helping anybody by all this politicking and maneuvering and backstabbing. That was really frustrating for me.

What advice would you have for someone who is caught in the middle of that kind of politicking?

Stay true to your values and don’t ever waiver. It’s easy to get caught up in it, but you need to step back and assess what is right in the particular situation. You don’t necessarily have to buck the system but you can accomplish what is right at the end of the day almost in any situation. Take that time to ground yourself and step back and look for what is the right thing to do.
Stay true to your values and don’t ever waiver

Does that always work?

I would say yes. I can look back to times when I overreacted, and generally these times didn’t work out so well. If you interviewed 100 people who worked with me, I believe they would say that I was always true to my values, always very ethical, even when it was painful. I just think that’s the right thing to do. And when you don’t act this way, I really do believe what goes around comes around.

The SEC is looking to curb high frequency traders’ huge influence on stock trading and is considering charging fees for the myriad buy and sell orders that are later canceled, among other options. SEC Chairman Mary Schapiro said a large portion of equities trading has little do with “the fundamentals of the company that’s being traded.” She said it had more to do with “the minuscule aberrational price move” that computer-assisted traders with direct connections to the exchange can “jump on” in fractions of a second.

One remedy being considered would be to force high frequency traders to pay for the canceled trades that make up nine tenths of all orders. Another possible remedy would be to require such traders to maintain competitive buy and sell orders in the market throughout most of the trading day. High frequency trading firms move in and out of stocks rapidly using powerful computers. Ms Schapira said some of her concerns were sparked by the May 6, 2010, “flash crash,” when the Dow Jones Industrial Average plunged several hundred points in a matter of minutes before recovering much of the lost ground. A SEC report after the crash found that many high frequency firms stopped trading during the upheaval, and some placed added pressure on the market by selling their positions.

Many retail investors sat on the sidelines for months after the crash until they understood what happened that day (May 6, 2010). For that reason, among others, the crash posed a challenge to the SEC’s stated mission, which is to “maintain fair, orderly and efficient markets” and to “facilitate capital formation.”

Ms. Schapiro said the SEC already has implemented a number of fixes since the flash crash, including circuit breakers that will pause trading in a stock that has made a large move in a short period of time. The SEC has also banned so-called stub quotes, in which a trader can offer to buy or sell a stock for a price far away from what most investors are willing to pay-a factor that caused many stocks to plunge temporarily to as little as a penny, or to soar to nearly $100,000, during the crash.

Comment: An estimated 95–98 percent of orders submitted by high-frequency traders are canceled as the firms rapidly react to shifts in prices across the stock market. This obviously can have a negative effect on retail traders and strain the ability of the stock market to maintain fair, orderly, and efficient markets. I commend Ms. Schapiro’s efforts to restore soundness the stock market.

By Roger Eigsti
Board President,
Institute for Business, Technology, and Ethics

After years of delay, Congress took a big step toward approving new rules to ban lawmakers from trading stocks based on information they pick up in the halls of Capitol Hill. The Senate voted overwhelmingly to pass the legislation called Stop Trading On Congressional Knowledge Act.

The Wall Street Journal examined thousands of records of congressional trades using federal financial reports and found that more than 50 members of Congress traded actively. Many bought and sold stock in companies as Congress debated legislation that could affect the firms. Few appeared to make much money on the trades and many suffered losses. The Senate bill would prohibit members of Congress and their aides from making stock trades based on information they learn on Capitol Hill. The bill would also require public officials to disclose their financial transactions within 30 days.

The bill also requires so-called political intelligence practitioners to disclose their activities for the first time. The political intelligence industry comprises hundreds of lobbyists, former congressional aides and others who scour Washington for market moving tips about pending government activities that could affect stock prices. These political intelligence purveyors are paid by hedge funds and other Wall Street firms to gather information about pending changes in public policy the investors can use to make trades.

Before approving the bill, the Senate added provisions that require members of Congress to make public the full value of their home mortgages, prohibit senior executives at Freddie Mac and Fannie Mae from receiving bonuses while the companies remain under federal control, and ban former members of Congress from receiving government pensions if they are convicted of a felony.

An amendment extended the trading ban and disclosure requirements to the President, Vice President and high level executive staff, Federal Reserve Board members and other senior officials.

Comment: There has been much debate on this bill. Many legal experts say that traditional insider trading rules don’t apply on Capitol Hill because lawmakers don’t have a legal duty not to act on market-moving information. It’s appalling to me that our government has enforced insider trading rules on the general public but not on itself. This bill is long overdue.

By Roger Eigsti
Board President,
Institute for Business, Technology, and Ethics

The Darwin Economy: Liberty, Competition, and the Common Good

Robert H. Frank is an economics professor at Cornell University’s Johnson Graduate School of Management. He is the author of three other popular books, author or co-author of two economics text books, and a regular “Economics View” columnist for The New York Times.

The premise of capitalism is that individuals, operating in their own best interests, are guided by “an invisible hand” to create value for the common good. But Frank makes the case that, even with perfect information and rules to assure competitiveness, the common good is not always served by individuals doing what is in their own best interests. One problem is that performance is graded on a curve. And a second follows from this: Without collective action, there may be a disadvantage to even doing what is in my own best interests because of the costs associated with making this choice.

One of his illustrations brings this home in a profound way. Evidence was gathered on the safety benefits of helmets for hockey players the National Hockey League. In spite of the research, individual players did not wear the helmets out of fear that they would lose a slight competitive advantage by wearing a one when others didn’t. But when put to a vote, the players voted overwhelmingly to adopt a rule requiring they be worn by all. This is the only way they could gain safety without losing competitive advantage.

Individual choice tends to move toward the relative advantage at the moment. This forces choices against the good of the individual, and against the common good. In this sense, capitalism operates more like Darwinian evolution, where individual choice for the survivor may work against the best interests of the species. The cover photo to two elk clashing over the right to pass on their genes to the next generation has led to elk with huge antlers. These same huge antlers work against the species making them vulnerable to prey as they pass through dense foliage.

Frank often draws on his work in behavioral economics to explain how people really make decisions rather than how they might make decisions if they were fully rational.

The book is delightfully written with many illustrations and thoughtful arguments. He takes on the libertarian position, not be disagreeing with libertarian assumptions, but by using those assumptions to show the breakdown of the common good. One particularly fascinating section is his libertarian argument for a progressive tax system (p. 126).

I doubt that the case Frank makes in this book will be ultimately persuasive to those who see the world through a different lens. But even those who disagree with him should enjoy the carefully crafted, fun, arguments, and the insightful illustrations. I highly recommend this book.

Reviewed by Al Erisman

The Filter Bubble: What the Internet Is Hiding from You

Eli Pariser is the board president and former executive director of the liberal website MoveOn.org, which at five million members is one of the largest citizens’ organizations in American politics. He has written op-eds for The Washington Post and The Wall Street Journal and has appeared on The Colbert Report, Good Morning America, Fresh Air, and World News Tonight.

Personalization is an algorithm that filters knowledge about you to adapt your view of the information on the Internet. Amazon uses knowledge about the books you purchase to suggest other books that may interest you. YouTube and Netflix do something similar with videos. In fact, personalization is a core strategy of every major website.

Pariser’s goal in researching his book was to answer some important questions about personalization: How does it work? What is driving it? Where is it headed? What will it do to us? And how will it change our lives? What he discovered is the filter bubble.

The amount of information on the Internet is overwhelming. Many users model the Internet as either a large department store or a huge reference library, and personalized filters make it manageable. Most of us like not having to laboriously sort through all the content ourselves.

Of course there is another side to personalization: advertising. By collecting information about demographics, preferences, purchase history, and clicks, companies can target their ads directly to likely buyers. To most users, that seems a reasonable trade-off. But every click becomes a commodity. Highly profitable personal data companies have accumulated an average of 1,500 pieces of data on 96 percent of Americans to auction to the highest bidder. Among the data is the names of your family members, your current and past addresses, your politics and religion, how often you pay your credit card bills, whether you own a dog or cat, whether you are right-handed or left-handed, and what kinds of medication you use.

What concerns Pariser is that when personalization based on such comprehensive data is used to filter your searches you get a biased window on information. He asked two friends to Google for “BP” soon after the Deepwater Horizon oil spill in the Gulf of Mexico. They were presented fundamentally different results — one with news about the spill, the other with investor data about the company. Personalization has created a bubble using its knowledge of you that you can neither control nor easily escape.

Pariser examines the extent of the filter bubble with many examples. He extrapolates the effect of the bubble extending to news sites that show you only the news that appeals to you, filtering out something you really might want to read. He’s concerned about how personalization can influence your political thought by filtering out discourse with those of differing views — a fundamental tenant of democracy. And, unchecked, he sees an increase in discrimination and a decrease in well-informed people. Pariser says, “Your identity shapes your media, and your media then shapes what you believe and what you care about.” He calls this a you loop, being influenced extensively by your own ideas. His Ted Talk provides a quick and accessible summary of his ideas.

Pariser attempts to propose solutions to the problems he sees, ranging from individuals regularly erasing their browser history and cookies, to self-regulating companies, to government regulation.

Eli Pariser’s research is well done and his interpretation and conclusions are reasonable, although he glosses over the implications of this data mining for privacy. The book is engaging and thought provoking. I recommend it to anyone interested in the future and ethics of technology, He is planning a sequel, due in April, The Filter Bubble: How the New Personalized Web Is Changing What We Read and How We Think.

Reviewed by Scott Bradley

For Christmas, I received a Kindle Fire, a grown up e-reader with many of the features of an iPad. This was not on my list, though I have been following the technology for e-books since the early work with smart paper almost two decades ago.

I have resisted the personal use of this technology for a number of reasons, some perhaps valid and some based on the known learning curve of adapting my way of working to use a new technology. Over the next six months, I will join the journey of so many others to search for the value sweet spot.

The first experience was a pleasant surprise. Like my iPhone, I have found the Kindle easy to use from the start. I took it out of the box the day before I left for Boston. I needed the latest edition of a book that I was using for a class I was teaching, and I had downloaded the book from Amazon and begun browsing it in about 10 minutes. No manual to read, all very intuitive. That’s the easy part.

Now I face two challenges with my Kindle. First, can I adapt my reading habits to allow me to migrate from hardback books to e-books? Second, can I integrate this into my work patterns to find the way the Kindle fits with my iPhone, laptop, desktop, and my various storage devices (memory sticks, CDs, etc.)? At the start of this journey, I want to record my hopes and concerns. Over the next six months, my goal is to see if I can fulfill the hopes and either find ways around the biases and downsides, or determine that they are not as important as I now think they are.

Here is the way I am thinking about e-books: There are some obvious plusses. My arms will appreciate the fact that the 14.6 ounce Kindle Fire can greatly lighten the load of a briefcase that usually contains five or six hardback books plus a laptop. I am going through physical therapy now for the strained tendons in my elbow from business travel last summer, and perhaps I can bypass that painful process going forward.

Another obvious plus is the time to get a new book. A single click replaces driving to the local bookstore or ordering a book online and waiting several days for the book to arrive. It is also slightly less expensive, though not as much as you might expect. Selection is clearly a plus, since a virtual shelf of e-books will offer vastly more selection than even the largest bookstore.

There are other potential plusses for the e-reader, though I am still exploring the reality of these. Often after reading a book, I will want to use a quote from it. I am hoping that two features of e-books will provide improvement: a system of highlighting and notes will be easily integrated with the book, and a search capability will allow me to find the particular statement I want to retrieve. Having a digital form of the book certainly could allow for the search capability, but how well this works remains for me to explore.

Today, I perceive some minuses to e-readers as well. My exploration will include checking out the reality of these supposed limitations, followed by an overall assessment of the plusses and minuses.

I am slightly concerned about spending long hours reading an electronic book, and whether this will offer the same great experience as a paper book. Of greater concern is getting stuck without a charger, realizing I cannot access the book — not an issue with a paper book. My experience of reading the first book gave me a feeling of passing through a large scroll. Often I can remember an idea in a book as being “near the top of a right-hand page, about p. 100.” Without page numbers, and sides of the page, I find the question of location somewhat disorienting.

An even bigger concern is the lifespan of the book. I have some books in my collection that are more than 100 years old, and they will still be accessible indefinitely into the future. The Dead Sea Scrolls illustrate a very long life for paper books. With e-readers and format standards in flux, will I still be able to read the e-book I buy this week in 20 years? I know I have some older software on floppy disks, and even punch cards, that are no longer useful. With the expected technology change, what life span can I expect? Also, in spite of the potentially infinite virtual shelf of books, there are many books not yet available in electronic form. I needed a copy of Money and Power by Jaque Ellul for the trip to Boston, for example, and there is no electronic copy (yet).

Then there are some more personal concerns. I tend to do a lot of reading on airplanes and while walking on a treadmill. The former doesn’t concern me so much, except for the irritation of shutting off the book during takeoff and landing. But I don’t yet know how the form factor of the e-book will adapt to the treadmill, a convenient place to combine reading and exercise. I do know it is not as rugged as the paper book when it slips and goes flying off the back of the treadmill. And while my underlining and note taking in a paper book is a bit awkward on the treadmill, I will have to see if I can perform the more exacting highlighting and note taking on the Kindle while walking at 4 mph up an incline. Another personal concern is the limitation on sharing books, something I often do with the paper books I buy. Trading and lending are more tightly controlled. Finally, I have a significant number of my books that are autographed by the authors. I can’t think of how to personalize this experience on e-books.

Some of these issues may simply be my own resistance to change, some may be solvable, and some may be things I will be willing to give up because of the other advantages of e-books. I will be tracking these things as I put my Kindle Fire to use.

A second set of issues I am sorting is how the Kindle will fit into my suite of work tools with the other electronic devices. Several people have told me, for example, that I won’t need to upgrade the old laptop I am still dragging with me when I travel. I am not convinced — yet. A primary use of my laptop is for writing while I travel. Having a real keyboard, access to Word, and being able to access documents from a memory stick are all a part of writing that don’t seem obvious from the Kindle. I am open to being wrong here, and will investigate this area, too.

The iPhone, Kindle, and laptop are all tools for accessing the web. The latter two require Wi-Fi availability, where as the iPhone does not. But the iPhone is not conducive to downloading and editing large documents. How much of such tasks can migrate to the Kindle, and which should remain on the laptop? Do I really still need a laptop, or am I holding on to an old paradigm?

I know I am late taking this plunge, compared with my more “gadget” oriented technology colleagues. Advice, experiences, and other suggestions are welcome, and I will plan an update toward the end of the year.

Al Erisman is executive editor of Ethix, which he co-founded in 1998. He spent 32 years at The Boeing Company, the last 11 as director of technology.
He was selected as a senior technical fellow of The Boeing Company in 1990, and received his Ph.D. in applied mathematics from Iowa State University.

Tami Heim is a partner in The A Group – Brand Development, a technology, marketing, and media agency in Nashville, Tennessee. She has responsibility for integrated technology, social media, marketing, and strategic branding.

From 2005–09 she was executive vice president and chief publishing officer for Thomas Nelson Publishers.

Prior to that, she was with Borders Books from 1996–04, the last four years as president. When she left Borders in 2004, the company had had their most profitable year in history.

From 1980–96, Ms. Heim held various positions with Federated Department Stores, including general manager and division vice president for Lazarus Department Stores (1989–94), regional vice president for Lazarus/Riches/Goldsmiths (1994–96). After leaving Federated, the company combined all of its stores under the common name of Macy’s.

She is the author of one book and a frequent speaker on issues of technology and the media.

She has a bachelor of science in retail management from Purdue University in 1980.

This Conversation took place between Tami Heim and Al Erisman in Nashville, Tennessee, October 10, 2011. In November, Tami accepted the position as CEO of the nonprofit Christian Leadership Alliance, a position that she began in January 2012.

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Ethix: You are presently a partner with the A Group. But you have had senior positions with Macy’s, Borders, and Thomas Nelson. You have been in retail, bookselling, and book publishing. Tell us how you got here.

Tami Heim: It’s a continuation of a long journey that I have been on since graduating from college. I graduated from Purdue University with a degree in management, determined to pursue a career in retail.

I spent the first 22 years of my career with Federated Department Stores. By the time I left, I was overseeing two different divisions. It was a time when the company had strong geographic boundaries and each division had its own nameplate. I thought I would be with Federated forever. I loved the company and business. I received the best leadership management training in the industry. I served there during the ‘80s and the ‘90s when there was a lot of consolidation, and I learned much from the challenge of leading during periods of massive change.

The Business of Books

Then in August of 1996, I got a call from Borders Group. They were new, exploding in growth, and looking to add senior leadership to support future expansion. I loved their stores and spent at least one night each weekend in one of the ones in the Indianapolis area. They reached out to me, but it took me six months for me to decide to finally leave Federated.

I started at Borders as the territorial vice president for the west half of the country in December of 1996. I spent the next seven years in big-box specialty retail. The last four years there I served as president.

I stepped down from my position at Borders in March of 2004. We had a strong year and profitable year. In fact it was the last profitable year in Borders’ history. My daughter was a senior in high school, and I’d never experienced the joy of being a stay-at-home mom. Through a series of other personal events that happened that year, I felt called to step down and be present to all that was happening in her life. It was one of the best decisions I’ve made and I am forever grateful for the quality time we shared. I would not change a day of it.

In the fall, it was time for my daughter to go away to school at Ohio University. Soon after she left, I accepted the position of EVP and chief publishing officer for Thomas Nelson Publishers in Nashville, Tennessee.

I remained at Thomas Nelson four years. While there I witnessed all the changes that had happened in bookselling begin to ripple through publishing. Digital content development and social media were radically altering how people were able to publish and make a message known.

I left Thomas Nelson in April of 2009. I enjoyed a brief time out of the corporate scene and fully immersed in the planning of my daughter’s wedding. Later that summer, I connected with Maurilio Amorim, the CEO of The A Group (TAG). We had worked on a couple of projects together while I was at Thomas Nelson. I respected him, but had no idea the breadth and depth of capabilities within his organization.

I quickly realized TAG had the unique ability to occupy a sweet spot in the industry. With technology, marketing, and the literary representation under one roof, they had the potential to focus on “message” and brand development in a way authors, agents, and publishers were not able to at this time. Maurilio asked me to help with the integration and refine the branding component for the company. It was an irresistible invitation. Uniquely positioned to fill a gap, today we navigate the waters and accelerate innovative responses to the high velocity change that’s rocking the industry.

The Consulting Role

In this capacity, you are no longer managing people and organizations. You can offer your skills but it is up to someone else whether your work gets used. What are the plusses and the minuses in this kind of role?

It has been quite an adjustment because professionally I have always led a corporate team and owned the responsibility for the outcome. Probably the most challenging part of consulting is that you work hard and use all your experience, but the client makes the final decision whether or not they’re going to implement your recommendations. Sometimes they do and it’s great.

Sometimes, they don’t and it’s extremely painfully. You want to say, “Please learn from my mistakes. I’ve been down this road before. Let me help you get it right the first time.” It’s a major adjustment for me to pour my heart into a strategy and then not be involved in leading the execution of it. This role certainly challenges the way I am wired.

I am energized by the variety of people we work with: authors, organizations, publishers, and agents. I am passionate about the different ways that we add value. This is an extremely entrepreneurial position. We’re small but we’re mighty. We turn projects around quickly. Our programmers and designers love to do what’s never been done. It’s a very energizing environment and we often see things that other people aren’t seeing right now.

Let’s talk about books.

Yes, I love books!

I do too. I have a room that demonstrates my love of books. It doesn’t matter how many bookshelves I build, there are still piles of books.

Books and the Internet

But the business model for books started unraveling with the Internet. One step came with Amazon, which offered the proposition, “You don’t have to go into a bookstore to buy something you can buy on the Internet.” Did that affect life in a book company like Borders?

Amazon made its big splash while I was at Borders in 1998. We knew the Internet was gaining traction and everyone was trying to size and predict the change that was coming. We chose to relegate the developmental of our Internet distribution to a small tech group within the organization. We asked them to figure out this “online stuff.” We basically selected an off-the-shelf product to build our Internet platform.

Candidly, Amazon was irritating. I would go to my bookstores and find they had placed their promotional fliers in our books. They had trucks sitting outside the bookstores wrapped with Amazon logos. In San Francisco, next to one of our larger flagship stores, Amazon used the whole side of the building that our store overlooked as a gigantic advertisement for the biggest bookstore on earth.

Unfortunately, we didn’t have a presence on the Web because we were so consumed managing the operations of our brick stores across the nation. When I was told I would become the next president in 2000, I was not aware at the time the assignment would include the online component. From a holistic brand perspective it was absolutely the right to do.

During those early days, Forrester Research published a report that said, in essence, “You’re only going to be as good as the worst customer experience you offer, whether it is an in-store or online experience. We knew we were way behind online. Then The Wall Street Journal released an article with the headline, “Borders – Slackers in the Internet Space.” Not the kind of headline that does a president’s heart good. It carried with it the kind of pain that accelerates change.

Our Internet losses were high, we were behind in technology, and Amazon was growing rapidly. We fiddled with the technology side of the business for a year just to see if we might be able to stop the bleeding, but we couldn’t. In April 2001, we inked a partnership with Amazon.

It was radical because that kind of partnership had never been done before. People thought it was crazy but we were able to negotiate a deal that provided the best of Amazon technology, healthy freedom with our digital footprint, and a significantly unique competitive advantage.

At that time we owned the distinction as the best-in-breed for our in-store experience. We had the highest return on net assets and the highest productivity by store. Amazon garnered the best-in-breed online. The idea to align the best experiences in bookselling and buying was compelling. We joined forces and introduced a concept called “retail convergence.” The plan was to make books available anywhere and anytime customers wanted them. We created an in-store kiosk called Title Sleuth. People came into our stores and did their own titles searches. Then they chose how they wanted to buy and receive the product. Books could be shipped to their home or picked up in a local store. Regardless of the decision the customer made, we wanted to deliver an amazing experience and hear our registers ring.

The plan was to make books available anywhere and anytime customers wanted them.

When I left Borders, the Internet division was contributing the highest percent of net income to revenue compared to all our other divisions. When I left in 2004, the stock price was at five-year high. We had positive comparable store growth, and the biggest revenue year in the history of the chain.

Another technology trend is devices that allow you to search and record. So,  some customers will go in to a Borders or Barnes & Noble with their devices, browse the books and identify the ones they want, and then order it off the Internet.

Absolutely.

Retail Convergence

How do you deal with a business model where your customers use you and don’t buy from you?

That was the whole idea of retail convergence. When I was at Borders in that early day, our vision recognized that people would browse in our store and then buy online. What matter to us was to be in the best position to capture their purchase. Today, a consumer has so many more options.

There are five driving forces in retail: product, price, accessibility, experience, and service. To do well, a retailer must dominate in one of these five, and at least be competitive in two of them.

When you look at bookstores today, they no longer can compete based on assortment as compared to their online competitors. A bookstore has finite shelf space while Amazon and other Internet providers have unlimited virtual shelves. Seven million products are available through Amazon. A book superstore may only have 125,000 titles.

Ease of shopping and convenience have also been claimed by the online retailers. Today can order a book on your phone, iPad, or PC. How easy is that? With the birth of e-books, now even the actual content is delivered immediately. The price? In our wired world today, it’s easy to find the best price possible online for anything you want to buy.

Looking for an Edge

What remains as possible a competitive distinctive? There are two attributes from this list of five: the quality of personal customer service and the overall shopping experience. Sadly, in economically stressed times, these are the exact two that are most compromised.

It’s not unusual to find at a major book chain a huge line and a whole bank of unattended registers. That creates a frustration that completely detracts from the experience. With great attention on Internet and digital interaction, there is still a need for an extraordinary, wow, face-to-face experience. Most booksellers are not willing to increase those variable expenses to create a distinctive experience.

I wish I could say, “I’m really hopeful about the future of print books and traditional book stores.” I’m not. Last Christmas, we saw Amazon report e-books out-selling print books two to one. This Christmas there will be more digital reading devises hitting the market and with that another major shift will occur.

E-Books

So, e-books are the next disruption of the business model? It used to be that I could order it from Amazon but I wouldn’t get the book for a few days, whereas, I could pick it up from my local bookstore right now. But now I can download it immediately through my Kindle, Nook, iPad, or the like.

That’s right. And we will see more and more “enhanced” e-book experiences being introduced. You will be able to go deeper on an e-reader via links within the text. Those links will take you to rich background content in print, video, and audio formats.

You can also search. When I am writing something and want to include a quote from a book, I can search for it to get it right.

Correct. It is easy now and will continue to get easier. The sales of iPads and Kindles keep exploding. Kindle is becoming an incredibly important addition to a person’s suite of electronic products. It no longer matters if you are a digital immigrant and that your children are digital natives. The technology and interface is so easy – anyone can use it.

Print on Demand

There is another technology trend that seems to have been by-passed. A while back there was the idea of a bookstore could have just one copy of a book, and a very powerful print capability. When someone bought the copy of the book from the shelf, it would trigger the printer to create another copy. That would save on transportation, storage, and shipping. But this never seemed to catch on.

The issue was cost. We looked into that technology when I was at Borders. We envisioned what it would look like to have print on demand available in-store. We imagined a customer walking into a boutique setting, selecting a book, and enjoying a cup of coffee while his or her book was being printed and bound. In the end, it was too expensive and not practical to execute.

Now, however, the print on demand capability is working well for publishers. They are using it to rationalize their working capital. They can send a digital file to a printer like Ingram’s Lightning Source, print what they need when they need it, and not tie up financial investment in inventory.

But, print on demand also works against the publisher. Authors now have access to this same capability. In fact, through Amazon, an author can get professional cover design, editorial, and the production of a book via print-on-demand. Plus authors who self-publish now have access to Amazon distribution.

Role of the Publisher

Isn’t there another problem in the publishing area? As a consumer, I can come to trust a publisher and recognize that the book has had an editor, been carefully reviewed, and is judged worthy by some standards. When I am confronted with a large collection of self-published books, how do I sort through to find the gems?

We live in a wired world. People are spending 110 billion minutes a month online. Think about what that number means. If you went back in time one billion minutes, you would be back to the time of Christ. People are spending that much time online, in community and in conversation. That’s how and where they find out about books.

We live in a time where word-of-mouth reigns supreme. You are going to trust the people in your network communities more than you’re going to trust any little blurb placed by a publisher on the back of a book. You’re going to care about the reviews of people you trust. A review and recommendation by someone in your community trumps most everything else.

To publish a book today, you must have a great content and a way to connect that content to the people who care about it. Blogging is the most effective way to make an impact. Every time you post an update or share a link on social network, you’re publishing. You are communicating a message and making it known.

The barriers of entry is vanishing and if you self-publish, an author can own his or her content and earn 60 percent to 70 percent margin. This is much richer than the standard 10 percent or 18 percent a person or agent might be able to negotiate from a traditional publisher.

There was a time in our country when we considered ourselves citizens; then we became consumers, and now we are creators. The surge is happening. Bowker [The Official ISBN Agency for the United States, responsible for the assignment of the ISBN prefix to those publishers with a residence or office in the U.S.], in 2009 issued ISBNs for 1.2 million new books, and 78 percent of them were self-published. The rest of them were from traditional publishers who have not seen any growth over the past five years.

… in 2009, of 1.2 million new books, 78 percent of them were self-published.

That’s why you hear so much about platform and community. There are four essentials required to make it today. To rise above the noise you must have great content, connection, community, and the collaboration. And that’s true regardless of how you publish. Publishers are going to expect it and they’re going to expect you to work hard building your own community.

An abundance of marketing dollars no longer exists because most publishers are still held hostage to the limited shelf space that exists in the bookstores. They find themselves burning through their marketing budgets as they pay a high price for simply placing their books in these stores.

There are a million new titles crashing in on superstores that can only hold at a maximum, 125,000 titles. The real estate for bookshelf space is painfully limited. A publisher could pay anywhere between $20,000 and $50,000 for that book to sit on that shelf for just two to four weeks. And with so many titles available, retailers have no tolerance for titles that don’t move immediately.

Social media is a growing way to get people in different communities excited about a new book and invite them to help maximize the window a book has in a real life bookstore.

Were you able to create a different perspective in your publishing work?

I definitely brought a different perspective. I was responsible for all of publishing, so all of the senior vice presidents of the various publishing groups reported to me. They had all been in publishing most of their professional lives. I brought with me a consumer and retailer perspective. An influence that was more from the outside in than the inside out. Rather than, “We’ve find a great book and we like it just because we like it,” we wanted to understand how it connected to the deep felt needs of our readers. We paid closer attention to the trends in the marketplace and our market share penetration by category.

No other publisher was looking at market share by category. When I started, we had 21 different publishing imprints and many of them were publishing the same kinds of books. So when we evaluated performance, it was puzzling to me. There was redundancy among the imprints, and it was hard to isolate what category of books was truly driving our sales.

Over an 18-month period, we pulled everything apart and reorganized our inventory and publishing by consumer category. Just like customers who go into a store and know what section they want to browse, we started to think about our books by category too.

You know there are three primary ways a person shops a bookstore. Some look at that front table because they want to see what’s hot and new. Others love a certain category or genre and wander over to browse it. Finally there are those crazy about an author and want to see all they’ve written and to make sure they haven’t missed something new. It’s amazing when publishers start to think like customers and publish based on what matters most to them.

But I still find books when I walk into a bookstore. I see a title from an author I have never heard anything about. I pick it up and I read it and say, “Wow, that’s great.” Does this kind of serendipity go away in this more direct marketing business world?

Yes and no. Yes, serendipity can be at risk as retailers keep inventories low. No, because you will see titles moving in and out at a faster pace. The days of being surrounded by full shelves with amazing depth in any one category are basically gone. I remember a survey once that revealed that 89 percent of the customers who came into a book superstore did so because they wanted massive assortment, but only 25 percent had a specific title in mind. Clearly serendipity was part of the magic and draw.

Attention Spans

There is another threat to books. People seem to have shorter attention spans than they had before this age of the Internet. So the idea of reading a whole book is not as common as it once was. I have read about a book per week over the last 15 years or so. But I realize I’m not the norm.

No. You’re not the norm. And every bookstore owner would love you.

And people tend to read shorter and shorter segments. It’s characterized by what we often call McNews, like USA Today, where they have short articles, summaries almost. What is this trend doing to books?

We are definitely seeing shorter books as well. A trade book in the past may have had 60,000 words, but today people get by with 25,000. Further, a lot of books today are “pumped with air.” They made to be easy to read. They have more illustrations, shorter chapters, if they have chapters at all. I love the book Rework that came out from the 37 signals group. It’s a business book in this new model. It communicates ideas simply with lots of illustrations.

A trade book in the past may have had 60,000 words, but today people get by with 25,000

I admit I didn’t like the book Who Moved My Cheese, though I recognize the world loved it. I found it overly simplistic, and the ideas were not well developed, yet it sold millions.

Simple books often sell well. Ideas that can be easily digested tend to catch on fast. I believe that is why Seth Godin’s Tribe has done so well. It is about 150 pages, no chapters, and would take about an airplane flight to read. He did a brilliant job of laying out the impact of the Internet, social media influence, and why we need leaders to lead them.

We live in a world that is visually simulated. We live in sound bites and communicate our inner most feelings in 140 characters or less. People barely have the endurance to sit through a YouTube video that is longer than three minutes.

The Future of Books

Pull out your crystal ball and tell me what the world of books looks like in 2025?

Here’s an interesting factoid that starts us down this path. There are predictions that between the growth of mobile devices and satellite placement every inch of the earth will be wired in 15 years. Now, to put that in perspective today, there are 7 billion people in the world and only about 1.9 billion are wired and online. That’s a lot of growth and the opportunity for more people to join the worldwide Internet conversation is immense.

People say that the earth is going to right-size itself between 8 billion and 9 billion people. The implications of that are enormous. My husband and I do missionary work in Haiti, where we go several times a year. These people have nothing but they do have a cell phone. And they will walk for hours to get clean water and charge their phones.

We are on the verge of an enormous tipping point regarding how we will communicate in the future. When you include mobile translation capabilities, even language barriers will be eliminated.

We are on the verge of an enormous tipping point regarding how we will communicate in the future.

With all of this capability, we have no idea what’s around the corner. It’s exciting and hard to think through all the ramifications of being this globally connected. When you say, it’s a small world – it will be a small world. Think about when Osama Bin Laden was shot. There were 5,000 twitter releases immediately after he was killed. News is breaking all the time because of the social networks. The news media can’t even figure it out and keep up. How many times have you watched the news and heard them say, “We want to thank everybody for sending us the pictures.” People in earthquakes are filming live. We can be all around the world at any time.

Borders’ Bankruptcy

How did you feel when Borders finally closed?

It was very emotional. I was in California, driving to the Ontario airport, and I passed one of the stores I had opened. There it was — vacant. And then, last weekend, I was at a wedding at Ann Arbor, Michigan. When I drove past the downtown store, it was very difficult again. An important part of culture disappeared.

People often ask me what happened to Borders. From my experience it is hard to ever point to just that one thing, although I know that it is possible to make a single decision that brings down an entire organization. But from my experience, a company begins to unravel because of what I call, “The Law of Lots of Lost Little Things.”

… a company begins to unravel because of what I call, “The Law of Lots of Lost Little Things.”

Simply stated, when times get tough, it’s easy for leadership to make small cuts here and there to relieve the pain. The first ones are quickly rationalized as unnoticeable and of no true consequence. The pennies they produce add up and relieve some of the pain, for a little while.

But when you keep cutting, over a very short time you become numb to the impact and then you wake up one day and everything that was special, distinctive, and magical is gone.

But while Borders had its challenges, I think what happened to it is the beginning of more to come.

Big Concerns

What big issues keep you awake at night?

I think a lot about the implications of this wired world and the changes we will see in the next 15 years. I’ve read reports that say between satellite placement and mobile phone distribution the whole world will be wired within this span of time. It will be an unprecedented time in the history of the world. More than 7 billion people will have the potential to be linked and connected to one another.

Lessons for Other Businesses

What does this digital transformation mean for non-media businesses?

Well, it certainly gives new meaning to the statement, “I’m going to assemble a world-class team.” Technology will bridge the connection between your company and brilliant individuals who can contribute to it from anywhere in the world. Being global will be a reality for any business, and diversity will assuredly become a business-as-usual practice.

There was a recent Mackenzie Report that suggested that technology is playing another role, eliminating jobs. And it’s been my observation that there’s a lot of jobs that were here before this recession. And company seems to have awakened to the fact that they don’t need all those people to do what they’re doing. So, what does this have to say about where then jobs are going to come from?

That is definitely a possibility, but there is another challenge I believe will be more altering to the future. The next generation is comprised of digital natives, 89 million strong in the United States. There is a transformation of thinking, processing, and interacting that will radically change the type of jobs available and the people needed to fill them.

Managing in a World of Change

Let’s talk about managing any business in this new world. What are some of the new key issues?

For a business, there is never a period of calm. The business is always going into a crisis, managing through a crisis, or coming out of a crisis. This is true of every industry, not just those dealing with digital content. When I was in retail we were faced with consolidation, downsizing, and right-sizing. I worked for Federated Department Stores for 22 years, but in that time we had mergers, bankruptcy, and acquisitions. I was with the same company, but I was like work for many different companies.

Change is all around us. I’m grateful for the leadership that I had while at Federated, speaking so much wisdom into me. I had an amazing mentor, Jim Zamberlan. He taught me about how to stay ahead of the change rather than getting caught up in it. You have to be a change catalyst today.

As the world gets more connected, there is the opportunity to engage more people, gather more input, and give voice to more ideas. When new people come into companies, they have new ideas that cause change.

When you think about technology, it accelerates change. Several years ago you had this enormous computer that was probably so big that you couldn’t even move it. Now you have all that power right here inside a smart phone.

This means there’s more information available to you. We haven’t even tapped the information that is currently available to us. I was just reading a report that said there are five million terabytes of information available on the Internet. Think about what Google has done in the past several years. It provides a portal into this information where you can answer questions with a click.

As a leader, you must be the person guiding others through change. There’s this uneasiness that calls for courage in order to overcome. It also requires letting go of something that was very comfortable. This happens in big and small ways. For example, how many times have you changed your cell phone? When you do that you have to let go of what you were comfortable with, and learn something new. Once you do, it’s great. But there’s mourning, frustration, and difficulty that’s part of letting go.

As a leader you must be the person guiding others through change.

Leaders have to be able to change themselves and to eliminate the fear of change in others. You must allow and recognize that people grieve what’s lost. This means guiding people through the process, understanding loss and even anger. Recognize that people want the old way back. This means dealing with the whole person, not just the person as employee.

Then you come to a point of acceptance. And even here, you have to prepare people for whatever is next.

I stumbled across a book at our local bookstore called Breaking the Fear Barrier, which dealt with this topic. It fits very nicely into what you are saying.

Adapting Culture

As you go through these changes with new people, mergers, new products and so forth, how do you deal with adapting the culture of the organization?

One of the things that I was tasked to do when I was with Federated Department Stores was to accelerate the merger between Rich’s, Lazarus, and Goldsmith. I was given responsibility for a segment of Lazarus in the north and Goldsmith’s in the south. It was surprising to me to see the differences in cultures.

In that assignment, the key challenge was to protect the integrity of the brand because that’s what was most loved by both customers and employees. But underneath that, foundationally, there were best practices and efficiencies that could be learned and shared to make the divisions and people stronger. It’s possible to respect the distinctions and still gain benefits from the merger.

It’s all about the culture. I’m a big advocate of trying to get at the core values of an organization. Jim Collins talked about this in Built to Last. Values reflect the people who are there. And you must understand what the values are and what behaviors within that organization cause it to live and move in the way it does.

And then you have to cast the vision of what’s possible in the future, what you believe can be. People like to hold on to the past, but there’s an energy that comes when you pose the questions, “Well, what if? What could be different?”

Give the people freedom to create something completely different and they will. It’s important to ask, “All right, how do we create it? And what would we need to do so you are enrolled in the process?” That’s where you can create a culture shift. Then as a leader, you have to be aware of the drift.

The drift is the conversations and old patterns that people tend to revert to if you are not careful. A leader must be aware of when things slip back into old ways of thinking and then remind people, “This is what is and where we are going.” Help them see something that’s very different. Keep giving them something that’s new and exciting. It will give them the energy to accomplish what needs to be done.

What role do unions play in business today?

Everywhere I worked we were determined to create a union-free environment. To do this, we invested a lot of time in making sure that we were connected with and leading our people. In my experience, unions usually come in where there is not strong leadership. When Borders was small, they could hire book lovers as managers, and that’s what we did. But they weren’t always good leaders or even good managers. People working for them would need answers to certain issues. Conflicts needed to be resolved, and they would have difficulty addressing them.

Unions had a place in the history of our country, but I don’t believe that need exists in the same way today. Leadership that cares about people, listens, and involves people in decisions will avoid the threat of union organization.

Middle Management

How would you advise a middle manager, a person in an organization, who’s caught in the middle? This person receives directives that come down from the top, and also deals with the reality of the customers and the employees in the organization. They may see that the directives make no sense, or don’t fit reality, but they are caught in the cross fire?

It’s a great question. When I was at Borders, we had new general managers come into the home office for training. It typically happened once a month and spending time with them was one of my favorite things to do. I was able to share our vision and key initiatives with them first-hand. While they were general managers or middle management, they were in many ways the CEOs of their stores. Their ability to understand and articulate the company’s vision made a big difference.

It is important that managers at all levels are connected to a company’s vision and clearly get it. And then within the framework of the bigger vision, they can create a vision for their workgroup. But then they must initiate action that moves their area closer to achieving the bigger vision.

It is important that managers at all levels are connected to a company’s vision and clearly get it.

Next, focus is important. There can be a lot of distractions for a middle manager. It’s easy to get sidetracked thinking about everything else instead of what’s the real priority. If a manager can stay focused on the assignment at hand and not be preoccupied with what’s the next position, doors and opportunities will open. I always encourage managers to do their best right where they are. I have seen that truth at work in my own life. When people take responsibility and own their performance then speed up their ability to grow within an organization.

If you’re in middle management, don’t spend time creating reasons or excuses for why you’re not able to do something. If you do, then you’re missing out on how you can empower yourself. Adopt the mindset that says, “What do I need to do to do differently to achieve a different outcome?” You can’t change others but you can always change yourself. It’s all about attitude. Only you can choose your attitude everyday, and it makes a difference if you choose it wisely.

What happens if you’re pushing the boundary and your management doesn’t want you to push that boundary? One of the things you mentioned was to try new things, take initiative, and you might fail. Some managers don’t allow their people to try things or to fail.

It goes back to taking the responsibility for what you want to cause or create. Getting alignment and then initiating the conversations that keep everyone centered is critical. Sometimes your leader may say, “OK, that isn’t the button to push.” You can either let yourself get frustrated or get realigned with the bigger picture. When you choose to align, you keep the momentum moving forward for everyone. You earn credibility and respect.

Then when you want to push the boundaries, take a risk, or try something new more people are willing to listen.

Career Advice

What career advice do you have for young people entering the market today?

I enjoy the time I’ve spent at my alma mater interacting with students. I’m always encouraged by the promise I see in them. I challenge people of all ages to recognize and accept their natural gifts, talents, and strengths. It makes all the difference in the world when you know what you’ve been wired to do.

People must be sensitive to the things in life that give them energy. If someone can stay in his or her strength zone at least 50 percent of the time, the momentum and joy will follow. Young professionals must be candid about what are their gifts and how those gifts bring value to the company they want to serve.

When interviewing, I remind students that they interviewing the company as much as the company is interviewing them. Once you understand your strengths, the questions you ask a potential employer and the answers you get will go a long way to help make the right choice. Soon we will see a massive exodus of boomers leaving the market place. There aren’t nearly enough gen Xers to fill those gaps. It creates amazing opportunities for those preparing to enter the workforce. I think that is especially true for those who know their strengths, are willing to work hard, and are clear about the value they are naturally wired to add to a company.

What about those who drop out of school? Do they have the skills to have a good career in this 21st century world?

People often point to Steve Jobs, for example, as someone who had a great career but dropped out of college. Bill Gates did as well. But these are extraordinary, brilliant people who do not represent the norm. Education is important. And beyond education, maturity is vital as well.

I served on the board of Growing Leaders in Atlanta, working with Dr. Tim Elmore, CEO, and have learned a great deal from him about this next generation. He is an advocate for building the right habits and attitudes. He talks often about the idea of artificial maturity.

Basically, we’ve protected our children too much. They’re so structured and busy. We don’t want them to fail. We give them rewards for everything. They show up, they get an award. Instead of sitting back and letting them be kids, explore, fall down, and figure it out for themselves, we try to protect them. Then as they get older, they don’t know how to deal with their newfound freedom. We think they’re ready for freedom, but they end up stuck, often not ready to head out on their own.

In the early part of the Y generation, kids born in the ‘70s and the beginning of the ‘80s, the attitude seemed to be hopeful, expressed by statements like, “We’re going to love this world. We’re going to take it on.” Then something happened in the latter half, and much of the shift is attributed to iPhones, iPads.

Dr. Tim Elmore wrote a fascinating book on this topic called Generation iY: Our Last Chance to Save Their Future. I highly recommend it to parents, teachers, and employers. He talks about exactly how this generation got stuck.

A recent study revealed that today young people do not consider themselves an adult until they have had their first child. When we were growing up, 18 was the magic number. I believe it is very difficult for those who drop out of school. This next generation is 89 million strong. It’s the largest generation to push through the pipeline in the history of our country. We need them focused, educated, and productive.

I believe it is very difficult for those who drop out of school.

Women in Business

What are the challenges for a woman in business today compared to when you started?

I believe things are much better than they were when I first entered the workforce. You see more women present in key leadership positions and having a greater influence on the future. Some people argue that it’s still not enough. Women face an interesting challenge when they choose balancing their work and family life.

Harvard Business School used to have a women’s summit every year. A couple of times I was invited to speak to the event and the most popular topic was always “life balance.”

Even these women who were extraordinarily committed to their careers were wrestling with how they might be able to do it all. They were looking for assurance from women who were already in the corporate world. I am not sure they totally got what they were looking for, but they did get some candid talk about the reality of trade-offs and the consequences that came with whatever choice a woman made about the two alternatives.

I’ve always felt the idea of balance was a lofty goal. It’s not something that is always possible to achieve in a day, but has to be looked at over longer periods of time.

What encourages me now is I see more women who are confident to run a business but not try to be a man about it. More women understand that they are different from their male colleagues and that they can add the most worthwhile value by contributing through their own gender lenses.

Personal Motivation

What is your personal motivation? You still have an exciting career, but what keeps you motivated?

That has changed over time. Before I graduated from Purdue, I was very achievement-oriented and driven. I was going to have the highest paying job. I was going to climb the ladder. I was so focused on all these big dreams for my professional career.

But the text of my life got completely rewritten. The day after I graduated, I turned my future over to Jesus Christ and asked him to take charge of it. Now I really live my life centered on his ambition and not my own. I try to live fully in the moment that I’m in and value each one of them.

I accepted a big paying job before I graduated, and then right after I graduated, I called them to say I wasn’t coming. My father was diagnosed with cancer and I knew I needed to stay home and help my mother with his care. I called the local company I had worked with during college. They had made me an offer to go into their management program, but I declined it because the other offers I received were far more generous. They agreed to hire me, but offered $2,000 less than the offer they extended me while I was still in college. It was humbling to say the least. I took it, because I was obeying what I felt like I had to do.

Because my motivation was divinely rewired, I wasn’t paying attention or thinking about that next level or promotions. I was focused, and I daily challenged myself to be a good steward what I’d been given to do for that day. I didn’t burn energy preoccupied with my own advancement. And that is how it’s always been in my career.

I was focused and daily challenged myself to be a good steward what I’d been given to do for that day.

And as a result, I have always been promoted to jobs within organizations without the formal interview process. My superiors observed and measured my work and had confidence I could do more. I am still amazed at what I have been able to do. No question it is more than I ever imagined – even in college.

When I’d been at Borders for two years and was running the west half of the country, I was called in and told that the president was retiring and I was going to replace him. We’d have a year of transition so there was ample time to get on board. I remember being somewhat shocked by it. I knew there were others who would believe they were more deserving of the position — confident and eager to take on the leadership role. I never felt that way. Our corporate leadership and board believed I was ready, so I humbly accepted the assignment and squeezed all I could out of that season of transition.

When I left Borders and before my daughter went away to college, I had a recruiter call me and say, “This is a $15 billion company, what do you mean you’re not interested in leading it? This could be your most important job you ever have.” I knew my daughter was the priority, and so I respectfully let them know I was currently focused on the most important job I would ever have.

When Zoe left for college, I had received three calls, went on three interviews, and ended up with three offers. Two were from retailers. One was at a very large retailer, looking to start me out by running a $9 billion segment of the business. Another was a specialty store headquartered out east. It was a lovely company with lovely people. And then there was my experiences at Borders. I certainly never thought of going into that side of the business. Publishers frustrated me because they never seemed to understand how to plan the business year after year in a way that ensured growth. At least that’s what I thought.

The retailers represented a continuation of what I had been doing most of my life. It would have been easy. It would have been easy for me to go in and just depend on me. But publishing, that was a different story. I knew nothing. But just as I knew I needed to spend time with my daughter, I knew this was where I was being called to go.