Wednesday, August 30, 2017

All the king’s horses and all the king’s men … battle between Promoters and Managers

The news consumed the business world at large, ripples felt globally as they impacted a large set of employees, customers, shareholders and the industry. Allegations and insinuations bordered on libel with subjective views on leadership of the individual who had steered the drifting ship, stabilizing and setting course that (almost) everyone had welcomed. Everything appeared to be going well until the brown stuff hit the roof and suddenly the knight in shining armor was declared incompetent and unworthy of the position.

Grave matter it was since the allegations were cast by the person who had anointed the CEO to begin with. Pronouncements at the time of appointment lauded the decision as a bold move that will transform the company fortunes and bring them back to the forefront. The market loved the sure and swift measures taking the market capitalization beyond earlier peaks. Market analysts bullish on the company helped the momentum and things seem to be settling into place when the murmurs of a rift were heard.

A couple of years later when the market got tougher, some old-timers left the company and a set of acquisitions did not bring the value, it was a matter of time. Their styles of operation were divergent, the market perceptions different, the go-to-market and customer focus not where the company had started from. The new leadership sought independence by virtue of the numbers doing the talking, the founders wanted to retain control over the direction taken by the company, influence decisions and outcomes.

Thus the rift became a chasm with the founders prevailing over the professionals; markets were not kind to the events, valuation dropping sharply, trolls on social media made hay further damaging the now fragile reputation of the bellwether. Customers called for review wondering if there is a change in focus of the company; whether they were still relevant especially as the new team and brought in many new revenue streams which put the customers at risk should the teams be disbanded or left to drift to natural death.

This is not the first time such a war has broken out between the Promoters and Professionals hired to run the company; history will repeat itself ad infinitum. This is where the Board of Directors – an independent conscience keeper – is expected to moderate the decisions and outcomes. Companies pick Board members based on their agenda and if they desire real advice with someone willing to challenge and provide expertise, or an acquiescent collective that will endorse decisions of the majority shareholders (Founders).

One of the companies where I spent some time had gone through a similar turmoil, the end result damaging the company’s market position, profitability and high talent attrition. The Board played second fiddle while the company spiraled downward. Another much publicized case involved a large conglomerate and a non-family member who was hired after a global search lasting more than a year; the downfall was spectacular and all kinds of hypothesis and speculation floated to undermine the outgoing person.

Were these cases of bad hires ? Probably not considering that the due diligence done was extensive and involved many senior leaders within and outside the company. The appointments were put to trail by media akin to baptism by fire – the individuals came through unscathed. At the helm of the company the accountability is to the Board and shareholders, apart from customers and employees whose interests come later. So was it a case of lack of transparency or willful withholding of sensitive information to the Board ?

In most cases there is a fall guy or a set of people who are blamed for the fiasco; life takes a dip and then limps back to normalcy. The triggers: the Promoters and the new Management fight fierce public battles only to be forgotten; the actors change, situations probably are different and so could be geographies, the outcomes are however predictable with the Promoters prevailing over the hires. The Board in such cases is deemed ineffective, new members brought in with a hope to remedy the situation, and then …

Every episode has lessons for both the Promoters as well as the Managers; these are published, discussed, debated, converted to slides, and become case studies in management schools. Every incident adversely impacts company reputation, customers, employees and at times the industry; in almost all cases the management is the antagonist – probably unaligned to the original ethos – who gets the short end. Every time we hope that now people would have learned a lesson and then they surprise us again.


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