Christmas 2002

Greetings, last year in this letter I was bullish on the prospects for 2002. Turns out I was mostly wrong.

If your business is in or related to semiconductors, telecommunications, or financial services, 2002 was not a good year. On the other hand, the economy has continued modest growth; the outlook for 2003 is cautiously positive; moreover, it seems unlikely that we will see the dreaded "double-dip" recession. Count your blessings and keep reducing your costs.

CEO's , as a class, have not had a good year. Jack Welch, fresh from the triumphs of a successful book and well-timed retirement, has been tarnished by a cozy deal with his Board and other not-to-be-mentioned activities. John Cassidy wrote a New Yorker piece (September 23rd issue) entitled "The Greed Cycle: How the financial system encouraged corporations to go crazy." He starts with the fact that a Financial Times study of business collapses since 1999 documented that the senior executives of these failed companies walked away with some $3.3 billion before their companies's collapses. It is downhill from there.

The Economist (July 13th) reported on a new study of Executive Compensation under the headline: "The pay of Chief Executives can seem ridiculous: it often is." The study debunks the prevailing economists's view of executive pay known as optional contracting theory. This is another article worth reading.

We have witnessed a breach of public trust. We expect CEOs to be compensated fairly but not ridiculously. One lesson of the past few years is that rewarding executives for run ups in stock prices at the height of a bull market is not a "fair" approach, at least not as practiced in the wide range public companies. What to do: first, demand an independent Board Compensation Committee, which uses, as one benchmark, the CEO's salary as a multiple of the salary of the average employee. Second, expense stock options. These actions are a start.

Enough on CEO compensation. Let's move to my book recommendations for the year. I have to go with Larry Bossidy and the Ram Charan's , Execution. This is useful rather than deep. Bossidy is good at describing how an organization builds a bias towards consistent execution. There are a few techniques here that one could profitably emulate.

For those of you with steel reinforced coffee tables, I can recommend Business: the Ultimate Resource edited by the ubiquitous Daniel Goleman (of emotional IQ fame). At eight pounds and over two thousand pages, this book also can double as a doorstop. Nonetheless, if you are scratching your head about a management concept you do not understand, this is the book for you: 140 best practice essays; 116 management checklists, and more, much more.

Without doubt, the most impressive book I have read this year is Roosevelt, The Early Years by Edmund Morris. The story of Teddy Roosevelt's youth and early years as a politician and Roughrider is riveting. TR's exuberance, courage, force of intellect, and pure physicality make quite a tale. ( much better than his new offering, Theodore Rex.)I was surprised by how little experience Teddy had in elective office prior to becoming President, although this lack did not constrain him in any noticeable way.

On the education front, a passion of mine familiar to many of you, 2002 has been a year of mixed blessings. Washington passed the much ballyhooed "No Child Left Behind Act" ( one thousand pages and much less than half as useful as Business: the Ultimate Resource). This legislation will go down as a colossal blunder done with laudable intentions. It lays on the states a ton of requirements that are unlikely to improve education but will cost a lot and divert local leadership from initiatives more likely to bring results. However, the legislation will provide enormous opportunity for testing companies, tutoring services, and systems integrators (for whom the database requirements will provide the same kind of bubble that national welfare reform did six or eight years ago).

On a more positive note, Maine became the first state in the nation to transform teaching and learning for the digital age by equipping all seventh and eighth graders with portable, wireless computers. The initial results have exceeded expectations. Teachers and students are engaged and excited by the potential of fully integrating computers into everyday learning. Stay tuned, this could be big.

Best wishes for the Holidays and the New Year.