Читать книгу Wounded Leaders: How Their Damaged Past Affects Your Future - Allan Bonner - Страница 7

There are numerous aspects of organizational life that could be studied as manifestations of the health of the modern corporation. We might examine recent accounting and ethical wrongdoing and come to the conclusion that there’s been a failure to instill in young people a code of good business conduct. We could also study extreme examples of executive compensation and attempt to link that phenomenon to the evolution of our consumer society. An anthropologist might even relate high executive compensation to conspicuous consumption. Indeed, there could be a long list of potentially fruitful areas of inquiry to explain selected aspects of organizational life.

Mergers and acquisitions present a particularly useful approach to the study of the effects of leaders’ behaviour. Many organizations have channelled significant energy-and resources-into these activities in the past thirty years. In addition, this is an area that has been the subject of many academic and business studies-and the evidence all points in one direction. Mergers and acquisitions rarely produce the benefits expected of them. So why have they been so popular? What is it that makes leaders risk so much when the odds are against them and the dangers so obvious?

The business press often has featured headlines about mergers and acquisitions as if they were trumpeting Allied victories in World War II or great advances in medical science. The economic story under those headlines, however, tells a much different tale. Staggeringly, three quarters of all mergers and acquisitions fail to meet their hoped-for goals.

One reason is the inability to know all there is to know about the company being acquired or with which one is merging. In addition to facilities, people, inventory, products, technology and other assets, you may be buying a lot of problems. One case study I came across of an ad hoc method of developing a security system in a large corporation can serve as a metaphor for how mergers and acquisitions may proceed:

“How does management proceed? Usually piecemeal. First, a security officer (probably unqualified) is hired, followed by an alarm company together, perhaps, with guards and gatekeepers. No attempt is made to make an independent assessment of the risk—present and future—and then construct an appropriate plan based on that assessment, available resources and vulnerability....”

(Hamilton, P., The Administration of Corporate Security

and Crime Prevention. 1 [1], 1987, 11-19.)

In the world of mergers and acquisitions, the parallel to this uncharitable account would be that management would proceed from an assumption that mergers and acquisitions are a necessary activity without first conducting the assessment of risk and rewards. It’s the cart before the horse.

Among the problems being purchased in mergers and acquisitions are those under the heading of cultural differences. This can mean the need to overcome language, religious and other barriers that are often associated with national boundaries. The challenge of doing business in Japan is the oft-cited example of dealing with unfathomable cultural differences. However, there can also be considerable cultural differences in countries that seem much closer. Germany and America are allies, trading partners and both are major industrial nations producing high quality automobiles. However, the Daimler Chrysler merger shows that even these common traits may not bridge cultural differences.

Even with a common language, as in America and England, there can be large cultural problems. In fact it is also possible to find cultural differences in the same industry and in the same community.

Culture has to do with nations, religions, languages and ethnicity, but it is also a collection of beliefs, norms, attitudes, roles and practices of a given group, organization, institution or society which is highly resistant to change. However it would be wrong to conclude that cultural matters are the only cause of failure when organizations attempt to merge.

Problems can also become evident in human resource matters. Productivity is known to decline during all periods of turmoil and uncertainty in corporate life. An organization may lose staff, and productivity may fall to less than an hour per day. Moreover, these human resource challenges may not fade after the merger is complete. The effects of the turmoil that mergers and acquisitions bring to long-term productivity, loyalty, morale and access to skilled workers may be profound.

There are also less visible or obvious dangers in mergers and acquisitions. As in biological mergers, business mergers can transmit dormant ailments. The metaphor in the era of safe sex is that one is having intercourse with every partner one’s partner has ever had. The metaphor may seem dramatic, but in the corporate context it is essential that the acquiring entity knows about any potential liabilities-such as environmental exposures, retiree health-care liabilities or legal actions for which it is assuming responsibility.

An example is the Bridgestone Company’s acquisition of Firestone. Bridgestone not only purchased inventory, a sales network, factories and a well-known brand name, but also the Firestone history. In that history are acrimonious labour relations, the largest tire recall in history, reluctance to embrace radial technology, questionable methods of storing raw materials, a questionable vulcanizing process and a relationship by marriage to the Ford family. So it should not have been surprising when a scandal, lawsuits and an even larger tire recall hit the new company. Certainly, the Japanese parent company had to grapple with US culture and the Ford relationship, which it did not do easily.

Perhaps the most damning of all evidence against mergers and acquisitions can be found on the balance sheet. Acquirers often overpay for target companies. The most notorious example may be Quaker Oats’ purchase of Snapple soft drinks in 1994. In that acquisition, the $1.7 billion purchase price eventually was judged as being $1 billion too much. In 1997 Quaker sold the brand for less than 20% of the purchase price.

Research has shown that a majority of M & A deals destroy value for the acquiring company’s shareholders. Returns for at least 71% of those deals are negative in the year following the merger.

As in human relations, foibles can be a root cause of unproductive and even destructive behaviour. Wishful thinking, a lack of unique offerings and a lack of rigorous assessment of the potential can all play a role in unproductive mergers and acquisitions. Some leaders may need to prove their worth to themselves and others. They may also crave the feeling or “high” that frenetic activity brings. It’s known that emotion and ego play large roles in both personal and professional failure. But there is also a financial manifestation to that failure.

A major bank studied the three decade frenzy of buying that ended at the turn of the century. It revealed that companies throughout the world spent “$3.3 trillion on mergers and acquisitions in 1999-fully 32% more than was spent in 1998. This resulted in a failure to realize expected gains from a whopping $1.6 trillion in investments”. Ironically, almost the entire thirty-year period of buying and merging repeatedly failed to achieve desired results.

Not surprisingly, business academics and others have enjoyed a field day speculating on why leaders engage in such unproductive activity and why organizations fail to realize their full potential. A lack of effective response to the business environment is one of the most perplexing aspects of organizational behaviour, says one study in the bibliography at the end of this book. Another blames gargantuan egos for causing the demise or continued mediocrity of companies in two-thirds of the cases studied. One author wonders whether some are compensating for dark and complex reasons rooted in childhood trauma!

It could be that mergers and acquisitions simply appear to be the appropriate way of doing business. Belief in an ever-expanding economy seems to point to the imperative of continuous growth. If new markets and products do not manifest themselves easily from the marketing and production departments, mergers and acquisitions may seem to be the appropriate means of achieving growth.

Today’s leaders may even be drawing on some celebrated examples from history, such as the consolidation of General Motors by William Durant or the morphing of Wrigley’s from a laundry soap to a chewing gum company. These leaders may be adopting a “world-view” or be putting on rose-coloured glasses by assuming that growth through mergers and acquisitions is not only a valid course of action, but a necessity.

Winston Churchill once remarked that men occasionally stumble over the truth “but most of them pick themselves up and hurry off as if nothing ever happened”. This may help explain why businesses would engage in flawed mergers and acquisitions, year after year for more than three decades, without learning that there are pitfalls to be avoided. It may sound odd that such stark lessons are not learned by successive leaders, but world views, and biases are powerful agents.

There is ample evidence that organizations do not learn from the mistakes made by others. There had been several large oil spills in Prince William Sound, Alaska, before the Exxon Valdez ran aground. A nuclear accident similar to the one at Three Mile Island had occurred some months before in the Tennessee Valley Authority. The product tampering that occurred virtually every week in North America did not seem to cause the makers of Tylenol, Aspirin, Ball Park frankfurters and other products to put effective safety measures in place. It is logical, therefore, to assume that the lessons of failed mergers and acquisitions are no easier to codify and pass on to senior managers in other corporations, or down through time, than are any other business lessons.

The role of “integration managers” in charge of mergers and acquisitions illustrates the unique personality types that may succeed in, or are at least drawn to, such deals. This type of manager may feel aloof from the organizational chart. The command and control chain is foreshortened. He is like a “cop” demanding results from all levels. One such manager says he feels as if he is “the CEO” of the deal. Others suggest that integration managers could be models for the manager of the future.

Often there’s an emotional high in a foreshortened organizational chart, time line and decision-making loop. It could be that observers and the integration managers themselves are simply describing a fairly typical executive addiction to the adrenalin rush one gets from deal making and crisis management. This is a powerful addiction to control. The return to normal times through the rejection of a potential merger or acquisition would result in a crashing descent from this high. Even if some mergers and acquisitions constitute unproductive or busy work, they are irresistible to many leaders. Thus, the personality of the leader is a fruitful area for investigating the existence and nature of leadership failures.

In addition to emotion and ego that seem to play such a large role in big business deals, other research shows that quite different cognitive and decision-making powers may be needed to make mergers and acquisitions succeed. Decision-making has been found to fall into three categories:

•Skill-based (almost automatic, such as driving)

•Rule-based (following rules or procedures), or

•Knowledge-based (creative).

Mergers and acquisitions usually feature a rapidly evolving series of events where decision-making based on skills or rules would not normally succeed. If these types of decision-making skills are more-or-less evenly divided in an executive population, this would suggest that about two-thirds of all senior executives would be unsuited for such work. To generalize, the law, engineering, and accounting are based on facts, research, and rules. Yet senior management teams draw heavily on these professional areas when what seems to be needed are other skills. One researcher describes using inappropriate and unproductive techniques as “active inertia.” In this case leaders and managers rely on their modes of thinking and working that brought success in the past. They simply accelerate the process of failure.

Traditional decision-making is a laborious process compared with what is needed to take quick advantage of a rapidly evolving business situation. Making decisions involves the identification of the problem, the generation and evaluation of options, and the choice and implementation of options, followed by more evaluation and the modification of more action. This linear methodology will not work well in rapidly escalating situations such as emergencies and the fast-paced world of mergers and acquisitions.

The technique required in this different environment is described by the experts as “naturalistic” decision-making (NDM). Situations requiring NDM feature fluid and changing conditions, real-time reactions, ill-defined goals, ill-structured tasks and knowledgeable people. Mergers and acquisitions often feature elements of missing data, shifting and competing goals, real-time reactions, real-time feedback to changing conditions, high stakes, time stress, and other factors.

The technique used by those trained to respond to dangerous emergencies is called “recognition-primed decision-making”. On-the-spot-decisions are driven by recognition of situations and patterns. Those decisions are re-evaluated constantly based on the latest information. In fact, emergency responders tell us they don’t make decisions-they simply take appropriate action.

In the recognition-primed decision-making model, action is key. Experienced responders usually pick a workable option for their first attempt. Action is modified and improved by a constant assessment of the situation and further potential options. They don’t try to decide which may be the best course, they just react to avoid known or observable dangers and re-evaluate their actions as they proceed. Mental simulations keep the decision-maker in a constant position to act, with the aim to satisfy, not optimize.

I must acknowledge that there are examples of successful mergers and acquisitions. Perhaps the most often cited is the record of achievement at GE Capital Corporation, a division of General Electric. GE Capital was originally formed to help and encourage consumers to buy appliances made by its parent company. During the 1990s, however, the CEO of General Electric used GE Capital’s financial acumen and muscle to target companies for potential acquisition. From 1993 to 1998 it completed more than 100 acquisitions, resulting in a 33% increase in employees and a 100% increase in net income.

The CEO at General Electric at that time was Jack Welch. He was described as “feared and confrontational”. He fired more than 100,000 employees in his first five years as CEO (1981-1986). Even when economic times were good, Welch encouraged his senior managers to replace ten per cent of their subordinates every year!

Mr. Welch himself quotes one executive as saying “Jack and I have been friends for eight years, and our wives see each other all the time. ...but he wouldn’t hesitate to get rid of me.” Another GE executive “checked himself into a mental hospital after an encounter with his CEO. Yet another, who struggled with obesity, was so worried that Welch would think him a fat slob that he had his lower bowel stapled—an operation that left him with chronic diarrhoea”.

During his 20-year stewardship of GE, the company’s value rose 4000%. When he retired from GE in 2001 he took a severance payment of $417 million, the largest such payment up to that point in history. In 2006, Mr. Welch’s personal wealth was estimated at $720 million. However, in spite of all the accolades he received and wealth he accumulated for shareholders and himself, all was not entirely well at GE.

When he became CEO, General Electric had just made a billion and a half dollars in annual profit, with Reginald Jones at the helm. Mr. Jones was one of the most admired businessmen of his generation. However Jack Welch, who was personally selected by Mr. Jones to be his successor, promptly cut back on General Electric’s Research & Development efforts to reduce expenses and increase profits. The result has been that a company that takes credit for first marketing the incandescent light bulb, the x-ray machine and unbreakable plastic, hasn’t come up with many revolutionary products in years.

A chemical engineer by training, it turned out Mr. Welch’s real strength was not R&D, but appealing to Wall Street with what has been called financial engineering. His wizardry is explained in this way by John Cassidy in The New Yorker:

“Say that G.E. has a stock-market valuation of four hundred billion dollars and profits of ten billion dollars, which means that its stock is trading at forty times its earnings. ...Now assume that G.E. buys another company with a stock-market valuation of twenty billion dollars and annual profits ...of two billion dollars. What is the value of the combined company? You might think the answer should be four hundred and twenty billion, but that’s not how Wall Street sees it. If investors continue to believe that G.E. is worth forty times its earnings, the new valuation will be four hundred and eighty billion dollars. As if by magic, sixty billion dollars will be created.”

Mr. Welch’s legacy as a wheeler dealer is secure. GE Capital was the real engine of profits for Jack Welch, accounting for almost half of the revenues of the parent company. It is really a bank—one of the world’s largest. Indeed, it now calls itself a bank. When Mr. Welch took control of GE, it was an industrial powerhouse. Now it’s something different.

In 1951, the CEO of General Electric commissioned a high-level task force to identify key corporate performance measures. In addition to profitability, the list included market share, productivity, employee attitudes and public responsibility. The report was silent on how these should be judged and it doesn’t seem as if GE valued these other metrics as much as the immediate bottom line.

Times change, but even if corporate profits were the only manifestation of success, how do we explain that despite the dubious track record of acquisitions and mergers so many corporate leaders continue to pursue this very risky strategy? Corporate officers have access to the same information as academics and journalists. Their lawyers and accountants can investigate mergers and acquisitions in similar industries over time, or read of the celebrated failures that are frequently in the news. Why then would this trend of mergers and acquisitions continue for so long, despite evidence of its dubious benefits? What is it in today’s business culture that allows, and perhaps encourages, many top executives to follow a path that they know (or should know) to be strewn with financial and personal land mines?

We know that senior people make decisions in different ways and these can affect business outcomes. Emotion, ego and even childhood trauma may be involved. In order to understand and explain the business and communication failings of modern managers and leaders, it may help to take a closer look at what constitutes leadership and the types of individuals who aspire to lead.