Monday Mornings with Madison

Stay in Your Lane, Part 1

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Estimated Read Time: 6 min.

In the recent running of the Kentucky Derby, Maximum Security — the horse that crossed the finish line first and was initially proclaimed the winner — was disqualified 23 minutes later by the judges.  The second-place finisher, Country House, then became the winner.  The disqualification was a result of something Maximum Security did.  It was an action that was visible on the video footage of the race and was not disputed by anyone including the jockey riding Maximum Security.  Midway during the second turn of the track, Maximum Security jumped out several paths and dangerously impeded the progress of multiple other horses.  That is viewed as a foul in the sport in any race, on any track, any day of the year, and, it is grounds for disqualification.  That it happened to the horse who was favored to win the prestigious Kentucky Derby and cost him a $3 Million prize was tragic.  It was also the right call, despite all of the opinions to the contrary.

Here is why.  It mattered not that the second-place finisher, Country House, was unaffected by the first-place finisher’s movements.  And, it didn’t matter that Maximum Security’s action was unintentional, a result of being spooked by the loud noise that the huge crowd in the track infield was making.  According to the rules and from the standpoint of the judges – the ones most knowledgeable of those rules — Maximum Security committed a foul against the horses who finished eighth, fourteenth and seventeenth.  For that, Maximum Security had to be placed behind each of the horses he fouled in the official order of finish. Therefore, almost every other horse, including Country House, moved up a slot and, it meant that a horse — which had been a 65-1 longshot – moved into the winner’s circle.

In the case of Maximum Security, he literally did not stay in his lane.  By darting sharply to the right in the middle of the race, he committed a serious technical mistake with his footwork that the judges deemed punishable.  A horse that interfered with his rivals so egregiously that it prevented them from finishing farther up in the pack could not be allowed to keep his final position ahead of them.  Whether intentional or accidental, he stepped out of bounds and his actions could have had dire consequences.   In fact, experts considered it something of a miracle that none of the three horses that were affected by Maximum Security’s actions — War of Will, Bodexpress and Long Range Toddy — didn’t fall as a result.  War of Will who was put in a perilous spot, with his front legs even briefly hitting the offender’s hindquarters, might have certainly wanted to say “stay in your lane.”

The judges who disqualified Maximum Security – and received an onslaught of criticism — might also have wanted to say “stay in your lane” to all of the people who second-guessed the decision.  The judges were not only following the rules of the sport but also doing what was in the best interest of the horses and the long-term reputation of the sport.  Already the entire horse racing sport is being villainized for how horses are treated and the dangers that the animals and jockeys face.  For the judges to ignore such an egregious foul would have incensed and fueled critics of the sport.  The judges – the experts – were in the best position both physically and factually to make the call.

Businesses Are Constantly in a Race to Succeed

So what does the Kentucky Derby or horse racing, in general, have to do with business and expertise?  It can be said that business is a lot like a horse race.  Every business wants to sell its products or services.  But, it’s not enough to sell.  The goal is outsell the competition, capture more market share, and walk away with the biggest balance sheet possible.  The competition is fierce and every company is vying for the lead and pushing against tough rivals.  The proverbial finish line for each business is to achieve the best bottom line each year and be able to run in the next race and the one after that. However, every business (and its employees) must adhere to the rules of the race… the external rules set by government and the internal rules set by the leadership.  And when staff are hired to fill positions based on their expertise, then it behooves everyone to stay in their lane and allow the experts to call the shots. When those rules are not followed – and the company and/or its employees don’t stay in their lane – there can be serious consequences.

Enron Does an End-Run Around the Rules of the Race

Case in point.   Enron was once one of the world’s largest energy companies.   In 2000, Enron was purported to generate $100 billion in revenues, $1 billion in net profit.  It was not only a darling of Wall Street, it was also a media darling.  Fortune magazine named Enron the most innovative company in America six years in a row.  But, by the time it collapsed in 2001, it cost thousands their jobs and wiped out billions of dollars for shareholders and pensioners.

Andrew Fastow was the mastermind behind a supremely complex network of off-balance-sheet special purpose entities and shell companies used to conceal years of massive losses.  He helped leverage Enron stock, which eventually led to the company’s spectacular bankruptcy  Every single deal he did at Enron was approved by the accountants at Enron, the outside auditors, the internal attorneys, the outside attorneys and the Board of Directors.  Yet, it was still illegal because he chose not to stay in his lane and stick to both the letter and spirit of the law.  Instead, he found and used every loophole available… every way around the rules.  Unlike in the Kentucky Derby, this technical footwork error was intentional.  Enron’s leaders did not stay in their lane.  It cost the company and its shareholders everything.

VW Flouts The Rules of the Race in the Face

Another case of a company refusing to stay in its lane was Volkswagon.  Like Enron, it was not only intentional, but the leadership clearly knew they were breaking rules.  From 2006 to September 2015, Volkswagen built its U.S. sales strategy, which was to surpass Toyota as the world’s number one car maker, on a lineup of vehicles that it knew did not live up to the pitch.  The cars, ranging from sedans, SUVs and crossovers, were hailed as “Clean Diesel” vehicles.  About 580,000 such autos were sold in the U.S. under their various brands:  VW, Audi, and Porsche.  Their Super Bowl commercials touted messaging that would be music to any environmentalist’s ears.  They showed high performance cars that managed to achieve excellent fuel economy and emissions so squeaky clean as to rival those of electric hybrids like the Toyota Prius.  But none of it was true.  The information was a software-inspired illusion.  In truth, the exhaust control equipment was programmed to shut off as soon as the cars rolled off the regulators’ test beds.  At that point, the exhaust pipes would spew highly-illegal levels of two types of nitrogen oxides (referred to collectively as NOx) into the atmosphere.  These gases cause smog, respiratory disease, and premature death.

First, Volkswagen’s top leadership in Germany insisted that the fraud had been perpetrated by a small group of rogue engineers.   In time, however, VW walked back that claim.  In trials, it became clear that the engineers had not only reported their actions to the top leadership early on, but that they were encouraged to sell those lies to EPA officials.  Everyone at the top seemed to know that they couldn’t reconcile the company’s goals with the law’s environmental demands.

Prosecutors in the United States and Germany have spent countless hours trying to determine who was aware of the scheme and identified over 40 people spread out across four cities and working for three VW brands as well as automotive technology supplier Robert Bosch.  U.S. authorities have extracted $25 billion in fines, penalties and restitution from VW for the 580,000 tainted diesels it sold in the U.S.  The value of those vehicles has declined 5-16% according to Kelley Blue Book as compared to other similar cars.  The scandal has also brought increased scrutiny of emissions testing of other car manufacturers and more revelations of tampering with emissions testing.

Like in the Kentucky Derby, not staying in their lanes when doing business has had serious repercussions for companies in the U.S. and abroad.   Next week, we will look at why colleagues and clients have a propensity for stepping out their lanes.  Stay tuned.

Quote of the Week

“When we fail to set boundaries and hold people accountable, we feel used and mistreated.” Brené Brown

 

© 2019, Written by Keren Peters-Atkinson, CMO, Madison Commercial Real Estate Services. All rights reserved.

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