How “Black Widow” C.E.O.s and Caretaker Managers are choking the life out of the world’s most profitable brands:
Fellow brand guy Rob Frankel and I don’t always agree on everything, but more often than not, he an I find ourselves on the same side of the fence, shaking our heads at corporate execs who somehow manage to choke the life out of an otherwise solid brand. They are the corporate world’s equivalent of the proverbial black widows – women who marry for money, kill their husband, and then move on to their next prey.
This isn’t to say that black-widow CEOs purposely kill the brands they are hired to manage, but it would be a stretch to pretend that they have any brand’s best interest in mind: By the time these guys leave – usually after just a few years – the size of their golden parachute seems to be in direct proportion to the damage they have caused.
The worst part about this is that in spite of their horrendous track record, they keep getting hired to run more companies and brands into the ground with the efficiency of an enraged elephant trying to muscle its way out of a porcelain store.
Rob Frankel has some pretty interesting things to say about this phenomenon, and looks at it through the cultural prism of the Three Generations of Wealth principle, in which the first generation creates the fortune, the second generation spends it and the third generation loses it. Pretty clever if you ask me.
Many American brands are victims of third generation “caretaker” managers, who themselves never had to build the very brands they’ve been charged to manage. Living off the fat of the land, they’re complacent managers who fear innovation and risk, the type that figure their brand will always be there, because it was always there for their fathers and grandfathers.
The trouble is it doesn’t work that way. The grandfathers who built the brands knew the power of a brand. They knew how to constantly build and reinforce their value. Caretaker managers, however, spend more time on the golf course than they do building brand value. In fact, most CXOs don’t truly understand what a brand is, let alone how to build its value. And so while the caretaker managers might hold hands, close their eyes and wish real hard, their brands continue to wither from neglect, with market shares shrinking into a mere slivers of what they once were.
But it isn’t enough to just point a finger at ineffective CEOs without looking at exactly HOW they are destroying the brands they should be elevating. There is a method to the madness, and here it is (in its simplest form). Again from Rob:
Year One: Get hired by suckers whose company is hemorrhaging cash and market share to the point that their desperation clouds their good business sense. The Caretaker uses this first year to make promises and “assess the situation.”
Year Two: Caretaker begins sniffing out departments where he can “cut costs”, drastically slashes budgets and tosses out the very employees who built the company. By cutting costs, he hopes to “restore profitability.”
(And on paper, it works.)
Year Three: The costs are cut, but the Caretaker has done nothing to increase revenues. While profits have increased, overall revenue is down and company infrastructure is devastated to the point where any hope of a real financial recovery is gone. But the Caretaker Manager doesn’t care: His deal is done. And by the time the folks who hired him find out how much damage he’s caused, it’s too late. His recruiter has already landed him at another company where he can do the same damage all over again.
The key element of this process is obviously Year Three: a) The black widow CEO has done nothing to increase revenue, and b) the company infrastructure has been severely weakened.Not a good combination.
By then, customer support (one of a company’s most important brand-reinforcing touch-points) has been outsourced, most departments are stretched well beyond their operational limits, and most of the company’s true management talent has left. Meanwhile, because little or no work has been done to enhance or even maintain the brand’s relevance, customers have started to shift en masse to competitors more concerned with creating value than cutting corners… err… costs.
Rob goes on to cite Chrysler’s choice to hire controversial serial CEO Robert Nardelli to take the helm as an example of this process:
According to the Los Angeles Times:
In Nardelli, Chrysler is getting a former senior General Electric Co. executive, who was both credited with overhauling purchasing and technology systems at Home Depot and widely criticized for pay and severance packages seen as excessive.
“This is an interesting choice, and I’m somewhat perplexed by it,” said Erich Merkle, an auto industry analyst with IRN Inc. “There are still things that Chrysler needs long term and I’m not sure Nardelli can provide them.”
Right. Things like vision, direction, purpose or clarity, perhaps? Heck, anything that even closely resembles a strategy beyond growth through acquisitions and further rounds of cost-cutting?
Now we’re on to something.
It should be said that Nardelli’s current annual salary at Chrysler is exactly $1, so kudos to him for at least playing along with Washington theatrics surrounding the spectacular bailout his company is currently benefiting from (especially considering his past history with grossly excessive executive compensation.) That being said, given his history, how can board of directors look at a guy like Nardelli and think “wow, this guy can really turn around Chrysler and get us to the top again?” His track record and tactics are pretty clear.
Is there a forest vs. trees problem going in in the corporate world, or are the boards that appoint these black-widow CEOs that clueless? (The question is not rhetorical. I really want to know.
How to spot a caretaker manager posing as a leader: Look for short-term P&L mirages instead of actual growth:
Something to think about: Efficiency is nice when you’re a CFO or a COO. A CEO’s job is considerably more complex than just hacking off unprofitable divisions and cutting costs to the point of operational anemia, however. (See Year Two, above.) Would Nardelli make a great COO? With the right CEO looking over his shoulder, probably. But CEO? Not on your life. Yet here we are, watching Nardelli accelerate Chrysler’s nose-dive by favoring short term profitability through aggressive cost-cutting over actually rebuilding a limping company and the brand that once made it successful. Sure, efficiency and profitability may look great on paper, but the end result, when not tied to long term strategies is almost always disastrous.
And if you don’t believe that a CEO can resurrect a company by understanding and embracing the value of its brand, just look at Steve Jobs and Apple. Consider for a second what happened to Apple when he left, and how his return a) brought Apple back from the brink, and b) turned it into the powerhouse that it is today. Did Steve Jobs rebuild Apple by cost-cutting and focusing on short term profitability, or did he set out to rebuild Apple’s relevance and culture of innovation again? (No need to think about the answer. It’s a rhetorical question.)
Now compare a black widow CEO like Nardelli and a visionary CEO like Jobs. What kind of CEO builds powerhouse brands and what kind sinks them? (Last I checked, Apple wasn’t applying for bailout money.)
Why is this a relevant topic this week? I’m sure you can draw your own conclusions, but the main catalyst for this post was Rick Wagoner’s precipitous removal from the helm of General Motors over the weekend… and subsequent appointment of GM’s current COO (and former CFO) Fritz Henderson. Now… I don’t know Mr. Henderson personally and haven’t followed is 25 year career with GM, so my questions about this choice as a replacement are completely uneducated and skewed towards today’s argument, but hear me out for a second.
Given what we have discussed today and what we know of corporate America’s habit of rewarding CXOs for short-sighted performance rather than long term growth, ask yourselves for a moment if the best possible choice to lead an ailing company (like GM) is really its former CFO/COO.
Do cost cutting and operational efficiency REALLY impact revenue, or do they mostly help the company’s P&L look good while sales continue their downward trend?
Can a 25-year insider/veteran of GM who has contributed during his entire career to the downfall of a brand really bring new vision and infuse new life into a dying company?
As I was researching this topic for today’s post, I happened to zero-in on a comment Edmunds.com’s Chief exec. Jeremey Anwyl today in an AP story on GM’s move, which he called out as little more than “political theater.”
I couldn’t agree more.
The point here being: Sure, Wagoner being pushed out was a good move considering Chrysler’s horrendous performance and complete lack of direction, but Henderson’s appointment basically negates any kind of forward momentum or positive outcome for GM. He is just another GM exec with absolutely nothing new to bring to the table.
It doesn’t matter how deeply GM and Chrysler cut costs. If neither company focuses on rebuilding their brand(s), they will not be able to rebuild their revenue stream. Period.
More of the same breeds more of the same breeds more of the same, and so on:
Case in point: The AP story makes some good observations about Wagoner’s success in cutting costs and improving operational efficiency at GM, but looking at the big picture, what did the cost-cutting really accomplish?
$82 Billion (yes, with a “B”) in losses in the last four years. That’s what.
Let me say that again: $82,000,000,000 in losses in just four years. (Source)
Does this sound like GM was moving in the right direction with the cost cutting and “restructuring?” In that time period, did GM’s brand as a whole capture our attention the way BMW, VW or Lexus did?
If you find my argument a little weak, ask David Cole (chairman of the Center for Automotive Research in Ann Arbor, Michigan) what he thinks:
“I don’t think you would see any shift or significant change at all with Rick’s leaving. I think the course that they’re on, they’re on.”
You don’t say. Yet Senator Charles Schumer’s (D-NY) comments on the change indicate how deeply rooted our general cluelessness about the value of true leadership and objective change really are:
“Given the history, a change in management could hardly hurt and might do some good.”
No, Senator. Change for the sake of change is just noise. Replacing a caretaker manager with another caretaker manager from the same management culture is not an improvement. It is nothing more than political gesticulation and pointless churn. What we do need, however, is fresh talent at GM. What we need are executives who want to rebuild the GM brand and will attack that task with the passion of a true believer. We need people who understand GM’s importance to the automotive industry and their millions of fans – both in the US and around the world – and will map out a future for it rooted in clarity of purpose. That kind of leadership looks a lot more like Steve Jobs, Richard Branson, Yves St. laurent and John Mackey than Robert Nardelli, Rick Wagoner, Fritz Henderson or Edward Liddy.
Stop mistaking managers for leaders. Please, for the love of god, learn the difference between the two.
The proverbial fork in the road: How companies choose to either succeed or fail:
Ironically, GM currently owns some of the world’s most more recognizable automotive brands, with Cadillac, Saab, Hummer, Chevrolet and Saturn making the list… So it shouldn’t be all that hard for GM to make a comeback… But unless it learns to embrace the power of the brands it depends on to remain profitable, it doesn’t stand a chance.
(As a taxpayer,) what I would like to hear from Mr. Henderson is a statement affirming a new direction in GM’s strategy. Specifically, one that leverages what Cadillac, Saturn and Hummer have managed to accomplish all on their own: Create unique cultural niches for themselves and build loyal brand followings. Cadillac especially, having reinvented itself over the last decade, could help ailing brands like Buick, Chevrolet and GMC find renewed purpose in a market saturated with banality, derivative designs and watered-down identities. In short, what I would like to hear Mr. Henderson say is that the lesson Cadillac learned in the course of its own successful reinvention will be applied across all GM brands effective immediately. That GM, while continuing its commitment to reducing costs where it makes sense will shift its focus back to making cars that people actually want to drive. That GM as a whole has a plan to completely revamp its design and Q.A. departments (please hire some Germans already) in the next six months. That it will immediately end production of all models with notably low market share. And most importantly, that it will actively seek to bring fresh executives to the table. Not US automaker flunkies from the same stale pool that got GM and Chrysler to the brink (like himself), but professionals from other industries with a talent for actually developing culture-affecting products and building brands from the ground up. And that – to that end – he plans to voluntarily step down from his role as C.E.O. sometime in the next year to give them room to work their magic. I want deadlines, direction, purpose and unwavering commitment. What I don’t want is more hollow posturing and vague rehashes of already failed strategies.
Sadly, hollow posturing is probably all we can hope for at this stage in the game. Even the White House seems content to let heads roll at GM and Chrysler without demanding real change. As a result, what we are likely to hear from both auto giants over the next few months will be the same old song that got us here to begin with: More cost-cutting. More attempts to return to short-term “profitability” by hacking their companies into strategic and operational impotence. More bean-counter promotions to leadership positions. More lame duck partnerships. More requests for bailout money. In short, more of the same. Why? Because expecting true leadership from caretaker managers trying to hold on to their jobs in a tanking economy is about as realistic as expecting my chihuahuas to start quoting Buddha, Mohammad and Ghandi in their native Spanish. (Though sadly, the latter is actually more realistic.)
The most likely outcome of this ongoing corporate FAIL will be an endless circus of caretaker managers taking turns playing C.E.O. musical chairs while their once mighty companies burn to cinders around them.
Let’s face facts: Any idiot with a calculator and a spreadsheet can cut costs to make his P&L look good at the end of the month. You don’t need 25 years of executive experience at the Fortune 500 level to master that little trick. So what exactly qualifies executives like Nardelli, Wagoner and Henderson to run (heck, to rescue) companies like Chrysler and GM?
The question I would like to ask these guys is simple: When you run out of costs to cut, then what? (Besides jumping ship or asking for bailout money?)
Anyone? Bueller? Bueller?
Repeat after me: No major brand ever rose to a position of market dominance by focusing on cutting costs.
Apple. BMW. Starbucks (in its heyday). Microsoft. Cartier. Disney. Newman’s Own. Michelin. Breitling. Cervelo. Oakley. Hermes. Pixar. Assos. The list goes on.
Is it really so hard to grasp these simple concepts? That P&L manipulation through chronic cost-cutting is no kind of strategy at all? That preserving the health of your revenue stream trumps all other business functions? That everything you do in a company should be done with one objective in mind: To create customers? That a C.E.O. can’t just focus on the dashboard or the rear-view mirror while he drives his company forward?
This really isn’t rocket science. Is it?
Help me understand how we got here. Two ways you can do that:
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Thanks for bearing with a particularly long post today. You guys are good sports. ;)