Business Bookshelf

W hat could be a better challenge for a successful CEO than to be asked to reinvent a failing organization? That’s just what happened to Charles O. Rossotti. In 1997—when the Internal Revenue Service could not have had a worse reputation—Treasury Secretary Robert Rubin asked Rossotti to serve as IRS commissioner and apply his management skills to “fixing” it. In Many Unhappy Returns, Rossotti describes the saga of repairing the IRS—the organization with the most customers and the lowest approval rating of any U.S. institution.

The IRS problems included

Billions of dollars spent on failed computer projects.

Press reports and congressional hearings on its poor service, bad management and alleged mistreatment of taxpayers.

An October 1997 Newsweek cover story that called it “a rogue organization wielding its awesome power under a cloak of secrecy.”

As the agency’s first commissioner from the business world, Rossotti evaluated the IRS conundrum from a management viewpoint. He likened the organization’s operations to an accounting firm whose audit partners “never met with the clients being audited, never reviewed the audit work papers and never talked to the frontline auditors.” His assessment: The agency needed a lot more than “public relations maneuvers”—it needed fundamental changes. He determined to modernize the entire agency, not just its outdated and patched technology. His first move was to ensure that an IRS reform bill, then wending its way through Congress, gave him the authority he needed to change the agency.

Just two months after he was sworn in as commissioner in November 1997, Rossotti and agency executives had developed the basics of the IRS’s modernization plan. Its goals were to provide better services to taxpayers and to become more effective at enforcing tax law compliance. He began the implementation when the bill passed in mid-1998. With support from Congress and key agency and administration officials, the IRS plan included the following five guiding principles:

Understand and solve problems from the taxpayer point of view.
Make managers accountable.
Align measures of performance to all organizational levels.
Foster open, honest communication.
Insist on total integrity.

The plan’s goals for taxpayer service were to make filing easier; provide filing help as needed, including when additional taxes are due; and increase the fairness of compliance. The goals for IRS employees—to increase job satisfaction, ensure stable employment and improve taxpayer service—were linked to increasing productivity through improving the quality of the work environment.

The plan called for major reorganization and five levels of change—revamped business practices, management roles with clear responsibility, balanced performance measurement, new technology and four operating divisions. These were wage and investment income; small business and self-employed; large and midsize business; and tax-exempt and government entities.

Many IRS difficulties beyond outmoded technology seemed to stem from agency-taxpayer and employee-management distrust, Rossotti found. To solve those problems, he had to “revise the IRS’s death spiral of distrust.” His background as cofounder/chairman/CEO of American Management Systems Inc. made him realize only strong relationships could induce the agency’s employees to trust their managers to “do their best” to fix specific problems.

The plan’s clear directives gave IRS employees the incentive to follow the new goals, the results of which quickly became apparent to taxpayers, the press and Congress. A 2001 survey found people “more satisfied with service from the IRS than with service from McDonald’s,” Rossotti reported, and “observers no longer believed the IRS could not change. Because they knew it had.”

Rossotti’s story of how he helped turn the IRS from a distrusted and outdated bureaucracy into a viable 21st century business is a remarkable one. In an engaging anecdotal style, he downplays his personal accomplishments and applauds the efforts of IRS employees for “taking their own steps to do whatever they could to do a better job for taxpayers.”

Rossotti’s five-year term ended in 2002. Because he thought his experiences were relevant to both public and private organizations, he wrote this book to express his conviction that “any organization, even a tax collection agency, can serve its stakeholders at higher levels than it ever imagined—if its leaders resolutely and passionately set out to do so.”

One lesson readers may take from this book is that to help create and sustain successful change an organization needs to

Keep the needs of customers at the forefront.
Get the right people into the right jobs.
Keep technology and business practices updated and aligned with customers’ needs.
Be aware of what’s happening where it really counts—at the front line.
Keep communication open and honest both inside and outside the organization.
Make the changes; don’t just talk about making them.
Rely on having the right governance, leadership, direction and authority, rather than on rules and mandates.

BARBARA J. SHILDNECK, a former editor of the JofA , is now a contributing editor.