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BirdsEye View

2007 promises to be a difficult year. Many banks are tightning the belt to compensate for thinner margins and rising deposit and compliance costs. I was reminded of the sagacious words of Alan Greenberg, the past chairman of Bear, Stearns, and thought they would be most relevant as 2007 unfolds.

My friend David Trautman, President of Park National Bank, is truly a rennaissance man. He recently shared with me of a poem by Rabindranath Tagore, the famed Indian poet, which says so much I am compelled to share it with you. Also note Dick's article on his diet secrets at the BirdDroppings section of www.anatbird.com. His ideas are particularly apropos this time of year...

I slept and dreamt
that life was a Joy
I woke and saw
that life was Duty
I acted and, behold,
Duty was Joy.

Like Nike says, "Just Do It!"

Alan C. Greenberg was, for many years, the chief executive of Bear Stearns & Co. He had a unique approach to coat containment, most aptly conveyed through his thin volume, "Memos from the Chairman". Not only were these memos humorous, they were also full of wisdom that bears repeating, especially as 2007 rolls in and bank executives are looking for ways to make the numbers despite the ever-shrinking margin.

Here are some representative selections from my favorite Greenberg memos. In each case, I have followed Mr. Greenberg's underlined dictums with comments of my own.

Hire PSDs. For those of you who are new to the company, PSD stands for "Poor, Smart and Deep desire to become rich". We all could use poor, smart, hungry people. They are the best sales people around; in addition, they make judgments that are in the customer's best interest because they know that building a strong stable of clients is their ticket to success.

Make decisions based on common sense and avoid the herd mentality. We bankers should put this one on our desks and read it at least once a day.

Control expenses with unrelenting vigil because if you turn your back for a second, they will grow like weeds. Bankers, who are notoriously negligent in this area, can all learn from the steps taken by Mr. Greenberg. Examples include:

• He forbade the purchasing department to buy paper clips
• He prohibited the purchase of rubber bands
• He followed up with a memo reminding everyone, "this may come as a surprise to some of you, but federal express is not a wholly owned subsidiary of Bear, Stearns and Co. inc". I am sure many of your staff will be surprised as well that FedEx is not a subsidiary of your own bank.

Greenberg then recommended that interoffice envelopes be licked rather than taped. "Instruct your secretary to only lick the left side of the flap when sending the envelope. After all of us become accustomed to accurate and precise licking, a further extension will be to lick only the third left, then lick the middle for the next trip, and the right side for the penultimate voyage. If one has a small tongue and good coordination, an envelope could be opened and resealed four times".

Help all departments grow, because this year's starlet could be next year's dog. Bankers cannot forget that cooperation is a necessary ingredient to success. We rush to blame current losers for corporate underperformance and forget the praise we gave them last year when they were stars. Your own mortgage banking department is probably a good example of such a "rush to judgment"; it turned from a silk purse to a sow's ear overnight when the refi book dried up as rates started rising.

Beware of catchy phrases such as "merchant banking". Beware of catchy phrases, period. They beleaguer the banking industry in particular, since many of us fit into the herd syndrome... "Synergy", "empowerment", "customer-centric", "seamless customer experience at all touch points" are among the catchy phrases we use every day, often without questioning whether they have legitimate meaning for our company.

A firm that has enthusiastic receptionists and telephone operators starts off with a tremendous advantage over the dummies of the world. Keep in mind the first impression people receive from Bear Stearns is from these associates. How often do we forget that our first line of defense - our operators, receptionists, phone bankers and tellers - are the most important people in our company, and yet our treatment of them does not always reflect that fact.

Whether times were good or bad, Mr. Greenberg always wrote positive, uplifting memos. During the bad times, he would always point out the great opportunities that existed and pressed for hiring and growth. When times were good, he cautioned that the period of euphoria would not last forever. During these times, he repeatedly reminded employees that "humans tend to get sloppy when making money is easy" and that "Bear Stearns will NOT get caught up in the hysterical optimism, and the people at Bear Stearns will NOT get careless or conceited".

Here are more fundamentals from Alan Greenberg's philosophy:

1. Emphasize to your associates that anything unusual should be brought to the attention of a superior at once. You will never be upset if it is a false alarm. Early warning is a critical success factor; however, fear often keeps employees from delivering this warning. Inculcating this principle in the culture will allow bank management to take corrective action when it can be effective. Too often we hear about things after it is too late to do anything about them (this is especially true when credits go bad...).
2. Do not get conceited or cocky.
3. Check on the people who answer telephones. Are they courteous?
4. Return all calls as soon as possible.
5. Watch expenses like a hawk. Now is the time to cut out fat. The rest of the world cuts expenses when business turns sour. With your help, we will different, smarter, and richer.
6. Do not spend money frivolously. Every dollar we save will go to the bottom line.

Greenberg once said, "I had a dream. This dream was that I returned to the world as a seller of fax machines, and I had Bear Stearns as an account. We are ordering fax machines around here like they are being given away - and they are not. We had a study done of fax machines, and it has been proven conclusively that the machines do not object to different people using them. This means that it is possible in departments to share in the use of these inanimate objects." It’s a good thing Greenberg doesn't manage Bear Stearns in the day of Blackberries, Treos and other devices; he'd have a heart attack seeing how proliferated these devices are.

In sum, another quote from Greenberg: "Remember the simple axioms that have helped us in the good times and bad. Having a great year is not going to change our culture:

• If we control expenses
• If we diligently evaluate risks
• If we hire carefully
• If we run our business according to the highest level of morality
• If we treat our associates as we would like to be treated
• If we make sure that the people around us treat clients with care
• If we just use good common sense, we can turn a great year into a fabulous one!

I believe Alan Greenberg's management principles are simple yet incredibly sound and eternal in their wisdom. Our business isn't rocket science; if we let common sense and moral conviction prevail, we'll be victorious. Cost containment should not be an event; it should be a way of life, where, by sweating the small stuff, you can afford the big stuff. Companies that implement these principles will enjoy longevity, prosperity, and a happy and effective work force and shareholder base.