Affordable Housing Institute : US

[Continued from yesterday's Part 1.]

 

Yesterday we began our two-part blog post providing unsolicited advice to Freddie Mac’s board as they search for a successor to now-resigned chief executive David Moffett.  As reported in last week’s Washington Post (red text) and Wall Street Journal (dark blue), the search will be difficult.

 

Going to the ends of the earth to find a CEO

 

So far we’ve covered the resume/ CV questions; now for the individual.  What will make a great CEO?

 

B.        Attributes and abilities

 

Whoever becomes the new chief executive will be the organization’s most important leader in its history – a statement that surprised me even as my fingers typed it, but that is nonetheless true.  Freddie Mac and Fannie Mae stand at a crossroads, where a choice must be made and from which there is no turning back.

 

“When you come to a fork in the road, take it.”

 

B1.       Is comfortable with shaping and executing any of the possible end states

 

No one knows what end state awaits Freddie Mac and Fannie Mae:

 

David M. Moffett’s resignation comes amid growing losses at the McLean mortgage-finance company and unresolved questions about whether it should follow the path of a private firm trying to make its way back to profitability or that of a government agency whose overriding goal is carrying out public policy.

 

There are at least four possibilities:

 

Four for the fiends?

 

1. Re-privatized under tighter regulation (perhaps with a strong oversight body as proposed four years ago).

2. Merged with Fannie Mae and then the conglomerate re-privatized.

3. Converted into a national housing finance agency – government owned, privately operated for public benefit.

4. Converted into something like FHA, government owned, governmentally operated.

 

Any of those could be the right answer.  Any of them could be what the Administration and the Congress decide.  The new CEO had better be able to guide Freddie Mac toward all four of them, keeping the options open, and then when the choice is made, execute to an effective organization consistent with that strategic vision.

 

I have the vision to find our future with my eyes closed

 

B2.       Commands the President’s personal respect to the point where he/ she can demand and get necessary space to do the job.

 

I almost put this first – and with the benefit of hindsight, doubtless Mr. Moffett would have put it first.  He was selected by a private board mere days before a Bush-presidency Treasury secretary took over both GSEs.

 

Associates described Moffett as never gaining the kind of independence he wanted as chief executive and never feeling fully invested in the company’s activities.

 

Mr. Moffett was blindsided – he had no idea he’d have to negotiate for autonomy, because he thought he was going to be running a bank!

 

Didn’t see that coming, did you?

 

His successor will be forewarned, and must have the President’s respect, otherwise he or she will be nibbled to death by ducks.  You cannot run a vast organization if your every decision is undercut by the swarm of administrators (see Wolfowitz, Paul). 

 

Sandbagged by my own staff – I never should have insulted them so much

 

B3.       Is fearless and principled

 

The new CEO must be someone who can bet his job and his credibility on what he thinks is right.  And there’s only one proof of that – he or she must be someone who did it once before. 

 

The new Freddie Mac CEO must have a strong belief in what is right and wrong, and must act on that belief, fully prepared to lose his or her job at a moment’s notice, but never to shrink from doing what is right because of that fear.

 

A man who put principle first: Archibald Cox

 

B4.       Can express a coherent vision of the need and mission of Freddie Mac in the changing environment. 

 

Freddie and Fannie will need friends in high places – on Capitol Hill, in the White House, and around the world.  It’s critical that the world continue to buy GSE paper and that the GSEs’ customers, counterparties, and employees all have something to believe in and invest in. 

 

To do that, they need a vision, articulated by someone who believes it and can express it.

 

A man with a vision: Cato the Elder

Carthago delenda est: Carthage must be destroyed

 

            B5.       Can inspire and motivate the staff

 

I know a fair number of people at the headquarters of both Fannie Mae and Freddie Mac, and more who used to work at either institution.  Without exception, the people I’ve encountered have been smart, hard-working, dedicated, knowledgeable, and mortified at what has happened to their organizations and how it could have come to be.

 

Moffett’s view of his tenure at Freddie Mac appeared to change with time. A few days after starting at the firm, Moffett was asked at a town-hall meeting of employees whether he planned to live in the Washington area, a sensitive question because his predecessor had often commuted from his home in Massachusetts.

 

We happy few

 

The employees are also demoralized, and they need rallying.

 

Moffett said he planned to move, and the employees thundered in applause.

 

To McLean!

 

B6.       Speaks and writes clearly and persuasively

 

To articulate the vision, to rally the troops, communication is essential.  For that, the CEO needs to speak and write clearly and persuasively.

 

‘If you cannot say what you mean, your majesty, you will never mean what you say and a gentleman should always mean what he says.”

 

Without artifice.

 

He so loved plain speech that he invented its opposite: Newspeak

 

C.        Things he/ she will demonstrate in the search process

 

The ideal new CEO will have the background and credentials; he or she will have the vision and the ability to express it.  But who will this paragon be?  What will define his or her character?

 

“History is made at night!  Character is what you are in the dark!”

 

C1.       Works for $1 a year

 

Mr. Moffett thought he was taking a high-powered banking job with lots of authority and, we can deduce, meaningful pay:

 

Pay also may have been an issue. In November, Freddie disclosed that the regulator hadn’t yet determined Mr. Moffett’s compensation plan but that in the interim his base salary was $900,000 a year. At U.S. Bancorp he received total compensation of nearly $5 million in 2006.

 

By now it’s clear that whoever is CEO of Freddie Mac needs to adopt the mindset of the current Fannie Mae CEO:

 

Fannie’s government-appointed CEO, Herbert Allison, who has described his job as “public service,” received no salary or bonus for 2008 but was reimbursed for certain expenses.  Fannie says the regulator hasn’t determined his compensation for 2009.

 

Making it part of his public service

 

Indeed, Mr. Alllison’s background is just what we prescribed earlier:

 

Mr. Allison worked for Merrill Lynch for almost 30 years, rising to the positions of president and chief operating officer.

 

A long career in investment banking – check.

 

 

Later, he [snip] became the chairman and chief executive of TIAA-CREF, the big money management company.

 

Mr. Allison began his career at Merrill Lynch in 1971, after graduating with a degree in philosophy from Yale, serving in the Navy and earning a master’s degree in business administration from Stanford.

 

While at Merrill Lynch, he lived in London, Paris and Tehran, where he met his wife. He returned to the United States and a series of senior jobs at the brokerage. In 1997, he sought to succeed Daniel P. Tully as the head of the firm, but lost out when David H. Komansky was named chief executive.

 

Mr. Allison was named president, but the partnership did not last long. In 1998, after a tumultuous period in the markets, Mr. Allison oversaw large layoffs at Merrill.

 

 

Willing to make tough decisions – check.

 

The next year, he resigned after being told he would not succeed Mr. Komansky, said a person involved in the discussions. He left long before Merrill became mired in the current mortgage crisis.

 

Great reputation, not tarnished by recent problems – check.

 

 

C2.       Intends this to be the end of career

 

Somebody willing to throw himself upon the pyre of public service for a dollar a year must necessarily be someone who sees this as a logical capstone to his career.

 

The only potential candidates for such posts are retired or unemployed executives with little recent crisis experience and “a burning desire to make sure that these great financial institutions come out of this,” said Barrett J. Stephens, a managing director of RSR Partners in Greenwich, Conn., an executive-search firm that also recruits board members.

 

You sure this is good for career-building?

 

C3.       Has no personal ego; ego is in the mission/ job

 

It’s all about the job, not about your personal glorification.

 

Sorry, Donald, despite your bankruptcy experience, you’re fired

 

C4.       Takes the job on a time-limited basis

 

The CEO should state right up front that he or she is in the job for a short interval, such as two years, solely to guide the organization through its current crisis and to its period of stability.  Once it has stabilized into a suitable new form (see B1 above), and we are out of the current economic difficulties, it will be time to hand over to a new leader for the future, preferably one promoted from within.

 

Run hard for two years, then hand over the job

 

(When the time comes, the President can always ask for longer service.)

 

            C5.       Negotiates and wins a longer leash

 

To judge by this Post report, Mr. Moffett tenure was doomed from early on:

 

As Moffett worked to present a 2009 business plan that would steer Freddie Mac back to being a profitable company, the FHFA second-guessed many of his decisions, people familiar with the matter said. He sometimes had to wait weeks for government feedback on issues such as employee compensation, spending on computer equipment and evaluating the risk of extending credit to borrowers, the people said.

 

You can’t run a business that way.  Nor can you inspire and articulate a vision when you’re procedurally gagged:

 

The company also had to get approval from its regulator for employees to speak on panels or attend conferences.

 

 

To be an executive, you have to be able to make decisions fast, and have those decisions executed by your leadership.  So the incoming CEO, during his or her recruitment process, must simply lay out conditions of contest, and get them in writing, so that he or she has a clear charter. 

 

Directors have [only] one function: they can and must judge the chief executive officer, and throw him out when the times comes.  (Since this task is painful, it is rarely performed even when all the directors know it is long overdue.)  The manager of a … company must come to these terms: he must make it clear from the outset that he accepts without question the right of the directors to assemble whenever they want and decide to replace him, in effect signing a resignation datable at their pleasure.

 – Robert H. Townsend, Up The Organization, 1971.

 

The new CEO can be fired at any time, but short of that, the CEO should say politely, ‘Mr. President, Mr. Treasury Secretary, get out of my face.’

 

Finding a successor could be a challenge, some recruiters said.  “The problem is there are very few people like that out there.”

 

Let’s hope they succeed

 

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