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Smart managers don't repeat mistakes
Sir Richard Evans, Chairman, United Utilities

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November 27, 2007

There was a very famous guy called 'T'. Wilson, who really was the eminence grise of the Boeing airplane company for many years. In fact, he was the guy who, in the postwar period, built up the Boeing airplane company.

When I got to know T Wilson -- he was a lot older than I was -- I was lucky enough one day to be having a drink with him. He was the guy who brought the Boeing 707 to the marketplace, which was really the first highly successful commercial jet airplane. Like a lot of other things, the Brits got there first but simply never turned it into a serious business venture. These guys in Boeing did it. But as a result, the demand for the aircraft rose so quickly that they were buying immense volumes of aluminum, which was a major piece of the material for the construction of the aircraft.

I was asking him, when he looked back over his career, what were the most difficult times he'd had in dealing with the investment communities and the analysts of the New York markets. He reminded me of a situation that I'd heard about briefly but didn't really understand.

They were buying such big volumes of aluminum at the time, and the lead time on taking an order and delivering an aircraft was three to four years - depending on the market supply and demand - so prices fluctuated violently. It's very similar to the oil situation today, actually. So you could sell an aircraft and assume a price for aluminum of X dollars per kilo, but by the time you actually came to buy it, it could have changed dramatically, either upward or downward.

T Wilson said to me, "We just had to find a way of managing this risk and getting it under control." He said, "I called the guy who was the chief buyer and said, 'Look, for these reasons, we have to find a way of stabilizing the risks in this program, and we think we need to look at some form of hedging policy.'"

Well, this was in the 1960s. Today, hedging policies are perfectly normal events. We hedge currencies, we hedge material prices, we hedge oil prices; but at that time it was pretty revolutionary. Anyway, this guy understood the basis of it, went out, and was effectively buying aluminum ahead of rates. The market suddenly turned against [Boeing], they lost a ton of money, and they had to go to the market and announce an exceptional loss.

T Wilson, as the chief executive of the company, had to go to all the big institutional investors in New York and explain what had happened. You start off with the investors, then you go to the analysts, and then eventually - because the analysts talk to the press - you have to talk to the press about it.

Eventually, this guy finished talking to the press. He was having lunch with a journalist, and the first thing this journalist said to him was, "I sure was sorry to hear about the loss on your hedging book on aluminum, but I sure as hell hope you fired the son of a bitch who was responsible for it." There was a bit of a pause, and I said to T. Wilson, "Well, what did you say to him?" He said, "I looked this guy straight in the eye and I said to him, `You what? And learn that lesson all over again? For sure as hell I didn't fire the guy.'"

That's a great story that tells you about how management interacts with the guys that have to do the job. It's also a lesson that tells you, in management terms, that you only have to be right 51 percent of the time to be on the right side of the curve. Here was a guy who had stood up and defended a guy who had cost the shareholders and the company an immense amount of money and kept the guy on in the belief that the guy would never, ever make that mistake again.

That always stuck in my mind, when I've had guys working for me who've made some seriously big mistakes. It's very unusual for a high-quality person - and hopefully when you put guys in these positions they are high-quality people-to make the mistake a second time around. That was another big lesson for me in this business.


Sir Richard Evans is the Chairman of United Utilities

Excerpted from:

Leading By Example, Lessons Learned Series. Copyright 2007 Fifty Lessons Limited. 

Price: Rs 415 (approximately). 

Reprinted by permission of Harvard Business School Publishing. 

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