John A. Edwardson: Blackjack, Executive Compensation, and Ethics

John A. Edwardson is president and CEO of BorgWarner Security Corporation, a Chicago-based provider of physical security services with $1.3 billion in total revenues. Prior to joining Borg-Warner in 1999, Edwardson served as president and COO of United Airlines and, still earlier, as vice-president and CFO at both the Ameritech Corporation and Northwest Airlines. He earned his engineering degree at Purdue and his MBA at Chicago. Edwardson serves on the boards (among others) of Purdue University and the Chicago Symphony Orchestra. A recent article in the Chicago Tribune reported his exemplary personal volunteer efforts in caring for prisoners and their families.

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Ethix: Computers and information technology have invaded the workplace. How has this affected the businesses you have managed?

John Edwardson: One of my frustrations has been to see some of the things that expensive computer equipment gets used for. I can’t tell you how many “happy birthday” and “new baby” announcements get circulated. Many of these things could have as easily been done on a fifteen-dollar telephone as on an eight thousand dollar computer set-up.

The amount of junk e-mail and computer game playing is also frustrating.

Late one evening, I was in the operations control center at United. Three- or four-hundred people are doing incredible things with computers in this center: tracking every plane in the world, monitoring the weather, amazing stuff. But I walked up to one guy and found him playing blackjack on his computer. I said, “Hi, how are you doing?” “Not too well tonight; I’m losing,” he replied. And I asked him, “How much time do you spend playing blackjack each night?” “Oh, three or four hours usually,” he replied. “That’s a lot of time,” I said. “Well, yeah, but we have these slow periods when we have nothing to do, so I just play games,” he added. I asked him then, “Did you ever think you’d be playing blackjack while the president of the airline was sitting next to you?” His mouth dropped open about 5 inches and he was literally speechless. “Have a good evening,” I said and walked off. At United, it is no longer permitted to install this kind of game software on company computers.

Does taking games off of their computers tell employees that you don’t trust them? Is there another way to manage this issue?

Other than for special training purposes, I don’t think that games should be standard issue on business software products. Games are not, of course, the only challenge to business computing! There are instances where it actually takes more time to do something with technology than without it. My mother had to open some new accounts at a bank recently.

It took us two hours to do on their new computer system what used to be done by hand in ten minutes. At United Airlines headquarters, 13 different local area networks were developed-lots of bells and whistles, but these LANs couldn’t communicate with each other. And yet, despite these problems, we cannot do without computers and technology. For example, a new airplane, like the 777, wouldn’t exist without computer simulation.

Computers can be misused to produce “garbage at the speed of light.”

On the positive side, a study of airplane maintenance mechanics found that about 40 percent of their time was spent going back and forth, looking up information. New technologies now enable us to deliver this information to them right where they are, doing their maintenance work. We need to have our eyes open to both the up and the downsides of technology and learn how to manage this reality effectively.

Tell us more about how technology has modified your businesses.

Let’s look at airline reservation systems. Without computer and telecommunications systems the airline industry could not have grown to where it is today, handling a huge volume of reservations and giving people vast choices.

At the same time, this technology has complicated matters. To a simple question about the cheapest fare from point A to point B, there is no simple answer. It all depends on the day of the week, the time of the day, the season of the year, and so on. There may be high travel demand times, like college Spring Break, which drive up the price. The training time for telephone reservationists is now seven or eight weeks — and they probably need a year-and-a half of experience before they really know everything.

Will these human reservationists be replaced soon by a “smart” system on peoples’ home computers called something like ‘‘Airplane Reservationist”?

Some of this technology is out there already, but it’s still very complicated. Some people research the availability of flights and routes but then call the airline to make the actual booking at the best price. Others, of course, are doing their own bookings.

Management can also use computer technology to monitor employee performance- with or without their knowledge or consent. Airline reservationists have been among those protesting against invasions of privacy and a stressful work environment of constant surveillance. The pressure is to shorten each call, to sell rather than merely inform, and so on. Is this an important ethical issue?

Many people comparison- shop by calling three or four airlines. Part of the job of the reservationist is to provide information, but part of it is to close the sale. Some callers forget that we have a business to run and want to spend a lot of time talking about the weather, family, and so on! We don’t want to be rude, but there has to be some way to get people to do their business and move on. Monitoring employees is intended only to improve job performance. We need some way to make sure that people are performing well. One can also get rusty, and there is always more to learn about closing a sale, being courteous and professional with customers, and so on.

Let me ask you a different question about technology. Do you think that, as communication technology improves (to include pictures and so on), we will need less air travel?

The need to see things in person is still so great for humans that people will continue to want to meet face-to-face rather than just electronically. I’ve seen the Mona Lisa in countless magazines and on a computer screen-but none of this compares to seeing it in person in the Louvre. The same is true of seeing people face-to-face.

Maybe it will work the other way: electronic communication may create a desire for more travel to meetings. It has also occurred to me that during a period of crisis (like the Gulf War) electronic communications could sustain business connections ordinarily dependent on travel. Your new company, Borg-Warner, provides security for “atoms.” Will it also be your mission to provide security for information “bits”? Information security is a huge challenge in our era.

Borg-Warner already does some of that. The ability of people to invade privacy, whether that of a corporation or an individual, is frightening. Even when you’ve got a filter or screen, people figure out how to get things through, such as pornography that shows up in your e-mail. People can often gain illegal access to privileged, confidential information. This is going to become harder and harder to control.

At the same time, there are great benefits to being able to access so much information. For example, you can make your products known to people whom you know from your research are likely to be interested. But how do you allow access to some of your information, while restricting access to, for example, your confidential quarterly financial projections?
People will continue to want to meet face-to-face rather than just electronically.

Another piece of this problem is that someone could get in and change your information; that destruction is almost as bad as stealing it, sometimes worse. Can you talk about changes in overall management structure during the past ten or twenty years? We hear that computer networks flatten hierarchies, decentralize authority and decision making, facilitate teamwork, modify relationships, and so on.

There have been huge changes. After the deregulation of telecommunications, we began to put reservation offices all over the United States. One of the things that we discovered was that once we got beyond about six or seven hundred employees in a single office, something was lost: worker satisfaction, attendance, and productivity decreased, sick leave increased. Maybe it’s that proverbial point when a new queen bee has to come along and take half the bee colony away.

So, instead of mega centers, we opened up a lot of smaller reservation centers that are able to have more team spirit and a consciousness of how one’s choices affect fellow workers. If you take a sick day to go deer hunting, and Joe has to cover for you, Joe knows that you went deer hunting! Communications technology makes this decentralization possible.

Now it’s gotten to the point where individuals can work from their homes. A new parent might want to stay at home but plug in for four hours of work each day. Still wider, there are individual computer programmers and software developers in India who are linked to many U.S. companies. These independent, distance workers are given a great professional and economic opportunity and they are providing much needed help to American companies who can’t find enough qualified workers here.

Let me move to a controversial issue today: executive compensation. About 20 or 30 years ago, the average CEO in America made something like 40 times what the average engineer made. Today, it is more like 60 or 70 times as much. Compared to the average line worker the difference used to be about 80 times as much, now it is almost 160 times as much. Is this an ethical issue, a market reality, both, or something else?

My perspective is that, first, I’m not going to sell my services for less than the going rate in the marketplace. Even though this is a lot of money, why should I sell my services and my talents for less than the market rate? From a lot of different employee levels at different meetings, I have been asked, “How can you justify what you make?”

I used to point out that a pilot makes maybe $240,000 a year flying 747s, and the janitor that’s sitting next to him in the employee meeting makes maybe $30,000 a year. How does the pilot justify that huge differential, especially when the pilot works about the same hours in a month in the cockpit as the janitor does in two weeks? It is partly an issue of the training and preparation required for different jobs.

For CEOs, in particular, part of the reason is that with consolidations and mergers companies are much bigger than they used to be. For example, where there used to be 14,000 national banks in the United States we’re down to 7,000 today. Typically, the bigger the company, the greater the responsibility, and the higher the pay.

I don’t know enough about my new job yet to say how much time it will take, but I know the job I had up until a few months ago was literally my entire life. I probably had four or five employee, customer, or political dinners a week. I traveled 250,000 miles in the air last year. If you called up to invite us out to dinner next Saturday night, I would laugh and say, “This is March, maybe I’ll have a free evening in May or June, but until then I’m booked every single weekend.”

The typical CEO’s whole life is planned and programmed; if you want the job, that’s what you’ve got to do. You’ve got employees in countries all over the world, political problems in many of them, service anniversaries and sales meeting to attend, problems that crop up-it’s literally unending. It’s difficult for many people to understand that the CEO of a major corporation works 75 or 80 hours a week.

I still think it must also be a market phenomenon. Companies must not believe that there are enough competent leaders out there and when they find one, he or she must be compensated accordingly. But many university professors work 75 to 80 hours a week, spend years getting a Ph.D., and register high on the stress index.

Granted, most of them also have tenure — guaranteed life-time employment — and a lot of flexibility in planning their long hours. Of course, some academic superstars and successful big-time college football coaches are given huge million dollar contracts these days.

Let me ask about union relations. How do you see the relations between unions and management now and in the future?

It is likely that we will continue to see shrinkage in the number of employees represented by unions as a percentage of the total employee base in this country. Both of my grandfathers were coal miners in Terre Haute, Indiana, where the coal miners union was founded. They were very strong believers in their union, but, by the end of their lives, they both felt that the union leadership had become corrupt. With today’s intense journalism and television coverage, it is really difficult to get away with being unfair to labor as in earlier eras.
The CEO of a major corporation works 75 or 80 hours a week.
There are still important and difficult labor issues in an international economy. Is it right, for example, to close a plant in the United States and open a plant in Thailand where labor costs are much less? It is impossible to isolate ourselves from the rest of the world. If we choose to do that, then the rest of the world will isolate themselves from us, and Boeing, for example, will never sell another airplane oversees. But this global labor market does raise issues for American management and labor.

Another important factor in the decline of labor unions is that we have the lowest unemployment rate in the history of this country-and the highest employee turnover that we’ve ever seen. People have great freedom and mobility, and hardly anyone is locked into the same job for life. New employment opportunities arise and modify the job market.

Have all of your companies had ethics statements and training programs?

Most of the big companies have ethics statements. Most of them have the top tiers of management sign conflict of interest statements. There’s a lot of training on sexual harassment, on race relations, and on different issues like that. New hires are usually given an orientation booklet that might include some examples of business ethics issues and guidelines.

I’ve actually been amazed at how few ethical problems I’ve run into in my career.

I’ve been very pleased with the quality and the morality of the senior officers of the big companies where I’ve worked. I have never bumped into anyone deliberately trying to do something unethical, like bending the rules in order to get a higher profit.

Many studies say that people’s ethical standards today are more uncertain than ever. The New York Times recently reported that prison inmates and MBA students were almost indistinguishable on a survey of their respective ethical values-and this was not intended as a compliment! Does this observation seem accurate to you?

Some employees tend to be more prone to theft and dishonesty than others and you never know why. Is it something in their background? Is it because there are fewer controls or how they feel about the company?

When we lived in Minnesota and I worked for Northwest Airlines, one of our daughters came home and asked, “Daddy can you bring some pencils home from your company?” And I said “Why? Are we out of pencils here?” And she said, “No, but all the other kids at school have pencils from their daddies company and I’m the only one who doesn’t.” And I said, “Well, this is why you don’t: I don’t believe that it’s right for me to take pencils from Northwest Airlines and give them to you to use for school.”

She understood what I was saying. I tried to teach my kids that taking things from Daddy’s office is as wrong as stealing a pencil from the grocery store. But many people don’t look at things this way. This example may seem pretty innocent and trivial but I believe there is a relationship between the morality we absorb in the family, in everyday life, and what comes out later in more serious incidents in the business world.

1 thought on “John A. Edwardson: Blackjack, Executive Compensation, and Ethics”

  1. 15 years later, as I’m leaving UAL for new adventures, John Edwardson remains as the most inspiring leader of an organization I’ve had the privilege to be part of.

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