Does Power Corrupt?

 

Dacher Keltner in a 2016 article highlights how “while people usually gain power through traits and actions that advance the interests of others, such as empathy, collaboration, openness, fairness, and sharing; when they start to feel powerful or enjoy a position of privilege, those qualities begin to fade. The powerful are more likely than other people to engage in rude, selfish, and unethical behavior. The 19th-century historian and politician Lord Acton got it right: Power does tend to corrupt,” (p.112).

 

When you think about ‘power’ it’s a strange attribute – very few people strive for ‘power’ on its own, though I accept there are the exceptions that do exactly that. I believe the majority of people don’t look for the power itself, they look for the ‘position’ whatever that might be – captain of a soccer team; leader in business; leader in their community; leader in government; or even an entrepreneur. As people strive for these positions they are rarely aware of the personal ‘power’ this brings, and believe they think more about the ability to shape the future (in a positive way) – it’s only when they are in these positions that the ease and temptation to use power to get things done, above other more positive traits, starts to raise its ugly head – and people start to change. 

 

Keltner highlights how “in an experiment, Paul Piff of UC Irvine and I found that whereas drivers of the least expensive vehicles – Dodge Colts, Plymouth Satellites – always ceded the right-of-way to pedestrians at a crosswalk, people driving luxury cars such as BMW’s and Mercedes yielded only 54% of the time, nearly half the time they ignored the pedestrian and the law. Surveys of employees of 27 countries have revealed that wealthy individuals are more likely to say it’s acceptable to engage in unethical behavior, such as taking bribes or cheating on taxes. And recent research led by Danny Miller at HEC Montreal demonstrated that CEO’s with MBA’s are more likely than those without MBA’s to engage in self-serving behavior that increases their personal compensation but causes their companies’ value to decline,” (p.113).

 

Its interesting research and each of us will have our own experiences, and hence opinions. For me, I totally agree with the research – I have found people in positions of power to behave more arrogantly and selfishly than those that have less. In fact there was an interesting research study done recently on homeless people begging on the streets of America – and it found that in many cases those that could afford to help didn’t, and passed the homeless person quite aggressively; and it was in fact those that had a little and maybe had once been homeless themselves that would stop and help.

 

Obviously this isn’t a one cap fits all scenario and I know there are many wealthy people who support their communities on a regular basis and don’t look for the recognition of their deeds; more often than not these are the wives, girlfriends and daughters of wealthy people who will support different local causes.

 

Keltner mentions that “the consequences can be far reaching. The abuse of power ultimately tarnishes the reputations of executives, undermining their opportunities for influence. It also creates stress and anxiety among their colleagues, diminishing rigor and creativity in the group and dragging down team members’ engagement and performance. In a recent poll of 800 managers and employees in 17 industries, about half the respondents who reported being treated rudely at work said they deliberately decreased their effort or lowered the quality of their work in response,” (p.113).

 

This is an incredible statistic, yet it probably hasn’t made a dent in the poor behavior and the abuse of power. Why? Because these power players are also good at covering their own backs – it’s never their fault when things go wrong and they seem to be masters at blaming others. Yet when things go well, it’s because of them and their leadership – where they play down the involvement of others. What’s incredible is that the senior leadership and corporate boards of organizations around the world seem to be oblivious to this basic kind of corporate bullshit; and blindly accept these peoples explanations of events – possibly because they are ‘content’ with performance. This sadly raises another key issue for organizations which is too many corporate boards are not fit for purpose; and filled with self-driven egotistical males (in too many cases) who also love the ‘power’ that comes with the role and don’t want to challenge the status quo.

 

So the misuse of power will continue in organizations and suboptimal results will be signed off by boards; until there is a complete shake up in how we conduct business and ‘we’ reintroduce genuine corporate values once again – and hold people accountable.

 

So that’s the bad news – but it doesn’t have to be this way. So what can we do about it? Keltner suggests that “you can outsmart the power paradox by practicing the ethics of empathy, gratitude, and generosity. It will bring out the best work and collaborative spirit of those around you. And you, too, will benefit, with a burnished reputation, long-lasting leadership, and the dopamine-rich delights of advancing the interest of others,” (p.115).

 

It simply goes back to basic values and concepts like treating people as you’d like to be treated. You know what it feels like to be led by a ‘power’ driven leader, the impact it had on your motivation, performance etc – so knowing the impact it had on you, you must know the impact it will have on your employees if you adopt the same approach. There’s no excuse to use power other than you have been over-promoted and are out of you depth. In these situations be honest with yourself and seek advice and counselling outside of the work environment; get feedback from your employees and work to be the best leader you can be.

 

Conversely you know the kind of leader who motivated you to perform, to exceed expectations – the kind of leader that made going to work enjoyable – the kind of leader you wanted to follow and were loyal too.

 

It’s not rocket science and it’s time corporate boards and other key stakeholders demanded leadership excellence in their organizations – as they know if they do, that performance will get even better and the company will become stronger and more efficient. Leaders who misuse power should be counselled and given support to change their style; and if they can’t change over a reasonable period of time then they need to be removed from the organization. This is the only way to change the negative impact of power in organizations.

 

As Jack Welch said “before you are a leader, success is all about growing yourself. When you become a leader, success is all about growing others.”

 

References:

 

Keltner, D. (2016). Managing Yourself: Don’t Let Power Corrupt You. Harvard Business Review, October, p.112-115.

Do You Believe in Transformational Leadership?

Transformational leaders try to develop their followers’ full potential (e.g., Bass, 1985; Johnson & Dipboye, 2008); therefore, followers tend to feel that their organization is effective and that it can provide future opportunity and development. As such, it is expected that followers will be more likely to stay in the organization because they are satisfying their needs for self-categorization/self-identity, and they have a sense of being unique from other members in society. Organizational identification is therefore likely to be strengthened.

 

Wang and Huang state in a 2009 article, that “in the last few decades, within the field of leadership, transformational leadership behaviour has come to represent the most effective form of close engagement between leaders and followers that motivates the latter to perform beyond their transactional agreements. Robbins (2001) defined transformational leaders as, leaders who provide individualised consideration and intellectual stimulation, and who possess charisma,” (p.381).

It was the late Bernard Bass (founding editor of the leadership quarterly journal) who back in 1990 attributed four behavioural characteristics to a transformational leader: charisma, inspirational motivation, intellectual stimulation and individualised consideration. It was only later, in 2003, when John Antonakis, Bruce Avolio and Nagaraj Sivasubramaniam replaced the characteristic of charisma with, what they termed, idealised influence.

Wang and Huang (2009) remind us that “a leader only possesses idealised influence if his or her followers seek to identify with, and want to emulate, him of her. This type of leader is admired, respected and trusted.” Further, “transformational leaders behave in ways that;

1) Motivate and inspire their followers by providing meaningful challenges;
2) Encourage followers to envision attractive future states, which they can ultimately envision for themselves; and
3) Aim to expand their followers efforts in terms of innovativeness and creativity by questioning assumptions, reframing problems and approaching old problems in new ways;” (p.381).

Research has also linked transformational leadership with levels of emotional intelligence. Where, for example, Wang and Huang mention that “emotional intelligence is an emerging topic within psychological, educational and management research, and that it was Daniel Goldman back in 1995 who suggested that the best predictor of who eventually emerges as a leader is based on emotional intelligence (EI), which includes abilities such as;

Self-Awareness;
Self-Management;
Self-Motivation;
Empathy; and
Social Skills.”

 

John Ryan from the Center of Creative Leadership mentions that "as we explore what's new and meaningful on the frontiers of leadership development, we do know this: the context in which leadership happens is changing every day in every sector. We are living in a VUCA world: one characterized by Volatility, Uncertainty, Complexity and Ambiguity and will be for years to come. In a dizzying swirl of socio-political upheaval, natural disasters and volatile business markets, many of us stay awake at night wondering if our skills and knowledge are enough to see us through tomorrow or the next quarter. Seeing farther than that is even more daunting and yet we have to keep searching."

The findings from Wang and Huang’s study “indicate that leaders exhibit more transformational leadership behaviour when they have the ability to perform self-emotional appraisals; others’ emotional appraisals; regulation of emotions and constructive use of emotions. Their findings support the view that emotional intelligence is an important variable for understanding and predicting transformational behaviour. Their results also contribute further evidence that transformational leadership influences not only individual level consequences, but also group level consequences,” (p.389).

 

Genuine transformational leaders possess great referent and inspirational power (Bass, 1985) which enables them to gain the respect, admiration, and trust of their followers. They are also seen as role models who exert significant and positive influence on followers that creates a sense of meaningfulness (Bass, 1985). Employees who experience a greater sense of meaning from their work are likely to feel more empowered (Spreitzer, 1995) and proud of being a member of the organization, and thereby enhance their identification with the organization (Koberg et al., 1999).

 

In their HBR article from 2012 Boris Groysberg and Michael Slind highlight that “smart leaders today engage with employees in a way that resembles an ordinary person-to-person conversation more than it does a series of commands from on high. Furthermore, they initiate practices and foster cultural norms that instill a conversational sensibility throughout their organizations. Chief among the benefits of this approach is that it allows a large or growing company to function like a small one. By talking with employees, rather than simply issuing orders, leaders can retain or recapture some of the qualities that encourage operational flexibility, high levels of employee engagement, and tight strategic alignment.”

In the last few years transformational leadership has become one of the dominant leadership theories and applications for successful organisational development. Occasionally as a leader, it’s worth stepping back and asking; are you a leader who is admired, respected and trusted by your followers and your peers – do people in your organisation strive to be like you? An honest reflection will help you understand the difference between just being in a leadership position and actually being an effective transformational leader.

References:

Groysberg, B. and Slind, M. (2012). Leadership is a Conversation. Harvard Business Review. July.

 

Ryan, J.R. (2012). What's next for leadership? 5 big ideas. Center for Creative Leadership Annual Report, 2011-2012.

 

Yung-Shui Wang and Tung-Chun Huang. (2009). The Relationship of Transformational Leadership with Group Cohesiveness and Emotional Intelligence. Social Behavior & Personality: An International Journal; Vol. 37, Issue 3, p.379-392.

 

Zhu, W., Sosik, J.J., Riggio, R.E., and Yang, B. (2012). Relationships between Transformational and Active Transactional Leadership and Followers’ Organizational Identification: The Role of Psychological Empowerment. Institute of Behavioral and Applied Management. p.186-212.

Is Your Leadership Training a Success?

Any form of training and development is an investment, for which there should be a measurable return in the short, medium and long term; hopefully in excess of the original investment. Organizations should spend the right amount of time identifying specific training and development needs; identifying how success will be measured; identifying potential suppliers and gaining the usual three or more quotes, (where the supplier identifies and commits to some form of measurable outcome for their service); and then implementing the solution and measuring the success. But is this what your organization is doing?

 

Michael Beer, Magnus Finnstrom and Derek Schrader in their HBR article write that “corporations are victims of the great training robbery. American companies spend enormous amounts of money on employee training and education - $160 billion in the United States and close to $356 billion globally in 2015 alone – but they are not getting a good return on their investment. For the most part, the learning doesn’t lead to better organizational performance, because people soon revert to their old ways of doing things,” (p.51).

 

What Beer, Finnstrom and Schrader identify is that organizations aren’t identifying specific needs, but instead seemingly responding to an organizational cultural need that simply says (or implies) ‘we have to have done some training this year’ – lets go and spend some money! If you don’t have a specific need in mind that is ‘owned’ by those taking the training and those they report to – is it any wonder ownership, implementation and change don’t take place after the vast amounts of money have been spent.

 

Beer, Finnstrom and Schrader mention how “education with the objective of individual growth is worthy in its own right, of course, and people are eager to acquire knowledge and skills that will help them advance in their careers. However, the primary reason senior executives and HR invest in management training is to make their leaders and organizations more effective, and results on that front have been disappointing. Three-quarters of the nearly 1,500 senior managers at 50 organizations interviewed in 2011 by the Corporate Leadership Council were dissatisfied with their companies’ learning and development function. Only one in four reported that it was critical to achieving business outcomes. Decades’ worth of studies show why it isn’t working, but, sadly, that understanding has not made its way into most companies,” (p.52).

 

In some organizations training just seems to be like a production line, i.e. let’s just show that we’ve put x amount of people through x number of courses and that will impress the bosses. But a good CEO or executive will always ask to see the impact of the return on investment and won’t be fooled by numbers. Great organizations look for quality that makes a real difference, rather than quantity that has no impact, other than on the ‘expenses’ column of the HR budget.

 

Beer, Finnstrom and Schrader highlight how “from all the streams of research we’ve learned that education and training gain the most traction within highly visible organizational change and development efforts championed by senior leaders. That’s because such efforts motivate people to learn and change; create the conditions for them to apply what they’ve studied; foster immediate improvements in the individual and the organizational effectiveness; and put in place systems that help sustain the learning,” (p.53).

 

I know some organizations where their employees have a reputation of being ‘training tourists’, because when they are assigned to a training program they hardly ever show up, as they know they’re not actually expected to ‘change’ once they get back to their organization. Often the training organization doesn’t mind, as they’re getting paid whether the employee turns up or not, so it’s a complete farce all round.

 

Beer, Finnstrom and Schrader remind us how ‘a poor return on investment isn’t the only bad outcome of failed training initiatives. Employees below the top becomes cynical. Corporate leaders may fool themselves into believing that they are implementing real change through corporate education, but others in the organization know better. Why don’t leaders get this? So what happens is HR defines the requisite individual competencies according to the company’s strategy and then sells top management on training programs designed to develop those competencies, believing that organizational change will follow. This widely embraced development model doesn’t acknowledge that organizations are systems of interacting elements: Roles, responsibilities, and relationships are defined by organizational structure, processes, leadership styles, people’s professional and cultural backgrounds, and HR policies and practices. And it doesn’t recognize that all those elements together drive organizational behavior and performance. If the system doesn’t change, it will not support and sustain individual behavior change – indeed, it will set people up to fail. Second HR managers and others find it difficult or impossible to confront senior leaders and their teams with an uncomfortable truth: A failure to execute on strategy and change organizational behavior is rooted not in individuals’ deficiencies but, rather, in the policies and practices created by top management. Those are the things to fix before training can succeed longer-term. It’s much easier for HR to point to employees’ competencies as the problem and to training as the clear solution. That’s a message senior leaders are receptive to hearing,” (p.54).

 

Organizations need strong leaders that demand an ROI on training and development solutions; and leaders that demand that those solutions meet a specific need that is identified and owned by the key players (the employee and their boss); and leaders that hold HR, functional leaders and the training suppliers to account. These three attributes are essential to stop the drain of money and the failing of training solutions.

 

Finally Beer, Finnstrom and Schrader indicate how “part of creating a favorable context for learning is making sure that every area of the business provides fertile ground. Soil conditions will inevitably vary within an organization, because each region, function, and operating group has its own needs and challenges. In our studies of corporate transformations and our work with clients, unit leaders have told us that their companies’ education programs were not wrong in substance but failed to align with their local priorities and stage of business and organizational development. In other words, their groups were not ready for the training yet. So companies should invest in capability development unit by unit. The corporate-level unit links everyone at the top – the CEO, their senior team, and key business units, regional and functional leaders and their key people. Individual units must consider their needs and their capabilities in the context of their own strategies and goals,” (p.56).

 

References:

 

Beer, M., Finnstrom, M. and Schrader, D. (2016). Why Leadership Training Fails – and What to Do About It. Harvard Business Review, October, p.50-57.

Does Big Business Learn From Past Mistakes?

Do we learn from past mistakes? In today’s global economy does big business look at past successes and past failures of other organisations to help them plan effectively for the future; or is there a sense of arrogance that comes with the large size of some organizations that makes them feel invincible?

 

On 15th April, 2018, it was 106 years since the Titanic sank and leaders should remember and reflect on the comments of the captain, Edward. J. Smith, before the fateful voyage. When asked how he could best describe his, nearly, 40 years at sea, he replied, “Uneventful. I have never been in an accident and I have seen but one vessel in distress in all my years at sea. I have never seen a wreck and have never been wrecked, nor have I ever been in any predicament that threatened to end in disaster of any sort.”

In the 21st century the biggest and most profitable organisations should be the guiding example for the rest of the business community to follow and learn from. Yet these organisations need to be conscious and aware; and not allow their size to make them complacent to their constantly evolving competitive business environment.

 

I know I’ve learnt so much during my career both from my mistakes and learning from the mistakes of others; and learnt that complacency can be a dangerous trait for both organisations and individuals as we go through our career.

It’s nothing new, “for organisations to deceive themselves is neither rare nor random. Charles Frankel, Assistant Secretary of State in President Johnsons Administration in the US (1965-67) concluded that self-deception was not simply a passing problem, but a permanent condition facing all organisations,” (Landau, M. and Chisholm, D., 1995, p.72).

So what can organisations and leaders learn from history and specifically the tragic story of the Titanic?

The Titanic was warned in advance of the increase in ice and the potential for icebergs, but chose to ignore the warnings; as an example, a steward on the Titanic when asked if it was true that the ship was unsinkable, replied “Madam, God himself could not sink this ship.” Large organisations can enjoy the feelings of power and control – and with it the feeling of invincibility just like the Titanic.

After setting sail the Titanic restated its objectives and decided to attempt to beat the record for crossing the Atlantic to impress its shareholders. There was no immediate reward for beating this record (held by its sister ship) since the Titanic was receiving publicity on both sides of the Atlantic. Power and arrogance led to this decision and contributed to the upcoming disaster. Best practice organisations focus on business principles such as sustainable growth and putting the customer first; on transparency and creating cultures that lead to job satisfaction and retention at all levels – an organisation that will provide a ‘luxurious and safe passage’ for all those who embark on the journey.

Finally, the capacity of the Titanic's lifeboats was only 1,178, while the ship was built to carry 3,000 passengers and crew. There was simply no way any more than half the ship's complement would survive should the unthinkable happen. So when the tragedy occurred, only the few survived - only 705 out of about 2,220 escaped to the safety of these craft. The lessons should be self-evident, plan for all eventualities; accurately analyse, assess and manage your organisations risk.

Critical self-evaluation is a basic requirement of excellence in leadership – it takes courage and self-belief – and that is how we will distinguish between the great leaders of tomorrows great organisations and those organisations who are wondering where the iceberg came from – and who to blame for not seeing it coming!

As Pamela Waymack states in her 2006 article, “management’s overconfidence and failure to see its own vulnerability contributed to the sinking of the Titanic. Neither historic track record nor size and prowess are a match for a market in flux. We cannot assume that our organisations are invincible. A seaworthy captain with a spotless record for 40 years was no match for this field of icebergs,” (p.41).

References

Landau, M. and Chisholm, D. (1995). The Arrogance of Optimism: Notes on Failure-Avoidance Management. Journal of Contingencies & Crisis Management, Vol 3, Issue 2, p.67-80.

Waymack, P. (2006). Managing the ice in the waters ahead: Lessons from the Titanic. HFM (Healthcare Financial Management). Vol 60, Issue 7, p.38-41.

Are You a Company Man?

The pressure of work varies from occupation to occupation – some are more relaxed than others in respect of the hours of intensity that are required. I remember when I moved into the consulting sector in my late 20’s having to work 16 hour days at times, especially when we were analyzing a potential client before the ‘project pitch’. It was exhilarating and exhausting at the same time – yet I have no regrets for the intensity, it was required at that particular time and I learnt so much at the same time.

 

Fortunately it wasn’t ‘constant’ and to some extent there was a work life balance over time – and as you ‘earned your stripes’ in the industry from a ‘grunt’ (as us new consultants were called) climbing the ladder to project manager and above, the intensity shifted from ‘hours’ to ‘strategic output and relationship building’. So there is a time and a place for ‘intensity’ in some industries, within the career life-cycle.

 

Yet in some other industries there seems to be a slight contradiction between the concept of finding that ‘work life balance’ and how some organizations ‘drive’ their employees. Erin Reid and Lakshmi Ramarajan mention in their 2016 article how “tales of time-hungry organizations – from Silicon Valley to Wall Street and from London to Hong Kong – abound. Managers routinely overload their subordinates, contact them outside of business hours, and make last minute requests for additional work. To satisfy those demand, employees arrive early, stay late, pull all-nighters, work weekends, and remain tied to their electronic devices 24/7. And those who are unable – or unwilling – to respond, typically get penalized,” (p.86).

 

This is the ‘new’ world we live in. Since the financial crisis job security has been a key concern for most employees. The financial crisis brought with it a constant stream of job losses, which hurt the life’s of hundreds of thousands of people around the globe, where many have never recovered. The new demands put on employees are based on the simple principle that if you’re not prepared to do it – there are hundreds of people ready to take your place. So fit in or ship out.

 

Reid and Ramarajan suggest that “many people manage the pressure to be fully devoted to work by simply giving in and conforming. Indeed, at one consulting firm among the companies we studied, 43% of those people interviewed fell into this group. In their quest to succeed on the job, ‘accepters’ prioritize their work identities and sacrifice or significantly suppress other meaningful aspects of who they are. People we spoke to across professions told us, somewhat ruefully, of giving up dreams of being civically engaged, running marathons, or getting deeply involved in their family lives,” (p.87).

 

But this group have another secret – they’re not motivated to go beyond the basics. They will do their job – work the crazy hours and sacrifice their personal life – but they won’t be committed to the organization or be innovators and influencers. They look forward to the day they can either find a better job or safe enough to get their life back.

 

Reid and Ramarajan mention “another strategy employed by another group of workers is to devote time to non-work activities – but under the organizations radar. At the consulting firm (mentioned above) 27% of the studies participants fell into this group. These people were ‘passing’ – a term originally used by sociologist Erving Goffman to describe how people try to hide personal characteristics that might stigmatize them and subject them to discrimination. Consultants who were successful at passing as ideal workers received performance ratings that were just as high as those given to peers who genuinely embraced the 24/7 culture, and colleagues perceived them as being ‘always on’,” (p. 87.)

 

What’s sad about this group is that they are living a lie and apparently getting away with it. There’s nothing healthy about this group – to themselves or the organization – though both probably see this as a win-win, it’s actually a lose-lose as integrity and transparency have gone right out of the window. They are passing themselves off as company men or women – yet devoting time to non-work activities without being noticed. They will ‘sell’ this game playing as a survival tactic, but if you sacrifice integrity for survival in business, what have you really accomplished and what type of person have you become.

 

Yet Reid and Ramarajan highlight how “not everyone wants to ‘pass’ – or can play the game of passing – and some who initially revert to ‘passing’ grow frustrated with this strategy over time. These people cope by openly sharing other parts of their lives and by asking for changes to the structure of their work, such as reduced schedules and other formal accommodations. At the consulting firm, 30% of those interviewed pursued this strategy – identified as ‘revealing’. Although it’s often assumed that those who resist the pressure to be ideal workers are primarily women with families, we have not encountered enormous gender differences in our research. Data from the consulting firm showed that fewer than half of the women were ‘revealers,’ while more than a quarter of men were,” (p.88).

 

Employees should be able to be ‘revealers’ at any organization – as the concept of revealing links with the concept of transparency. This is the kind of organization culture leaders used to strive for – but it seems that standards are dropping in this regard. It’s in an organizations interests to offer an environment that supports a fair work-life balance; because if you do the rewards are best for everyone. The employee is motivated, more healthy, focused and energized and the organizations reaps these rewards through increased commitment, innovation, productivity and optimized sustainable growth.

 

Reid and Ramarajan found, for example, that “most organizations leave it to the employees to set boundaries between their work and non-work lives – often with the best intentions. When Netflix offered unlimited time off, for example, managers thought they were treating their people like ‘grown-ups.’ But proving complete freedom can heighten employees’ fears that their choices will signal a lack of commitment. Without clear direction, many employees simply default to the ideal-worker expectation, suppressing the need to live more balanced lives,” (p.90).

 

Sudden change can often be viewed with suspicion by employees. If a tough organization suddenly offers unlimited time off – the employee’s natural reaction is to wonder what the catch is. Are they trying to see who’s not committed to the organization and then the next thing you know they are downsizing and you’re the first one asked to pack your desk and leave. Organizations have to have a genuine trusting and transparent culture before you can start offering unlimited time-off. Change has to be managed, especially when trying to change from a distrusting to a trusting culture – it will take a long time and must be approached small steps at a time.

 

Reid and Ramarajan conclude by highlighting how “the pressure to be an ideal worker is at an all-time high, but so are the costs to both individuals and their employees. Moreover, the experiences of those who are able to pass as ideal workers suggest superhuman dedication may not always be necessary for organizational success. By valuing all aspects of people’s identities, rewarding work output instead of work time, and taking steps to protect employees’ personal lives, leaders can begin to unravel the ideal-worker myth that has become woven into the fabric of their organizations. And that will enhance employees’ resilience, their creativity, and their satisfaction on the job,” (p.90).

 

References:

 

Reid, E. and Ramarajan, L. (2016). Managing the High Intensity Workplace. Harvard Business School, June, p.84-90.

Why Do Mergers & Acquisitions Fail?

“Mergers and Acquisitions is a mug’s game” according to Roger Martin “in which typically 70%-90% of acquisitions are abysmal failures. Why is this so? The answer is surprisingly simple: Companies that focus on what they are going to get from an acquisition are less likely to succeed than those that focus on what they have to give to it.”

 

The logic is sound and sensible, yet in a world of corporate greed the trend has become more towards the former, i.e. ‘what are we going to get from this?’ It’s sad, to say the least that today’s leaders are more business savvy; and some notable failures include, “in 2015 Microsoft wrote off 96% of the value of the handset business it had acquired from Nokia for $7.9 billion the previous year. Meanwhile, Google has unloaded for $2.9 billion the handset business it bought from Motorola for $12.5 billion in 2012. HP has written down $8.8 billion of its $11.1 billion Autonomy acquisition; and in 20111 news Corporation sold My Space for a mere $35 million after acquiring it for $580 million just six years earlier,” (p.44).

 

The problem was “Microsoft and Google wanted to get into smart-phone hardware, HP wanted to get into enterprise search and data analytics; and News Corporation wanted to get into social networking. When a buyer is in take mode, the seller can evaluate its price to extract all the cumulative future value from the transaction – especially if another potential buyer is in the equation. Microsoft, Google, HP, and News Corp paid top dollar for their acquisitions, which in itself would have made it hard to earn a return on capital. But in addition, none of them understood their new markets, which contributed to the ultimate failure of those deals,” (p.44).

 

One issue with the approach of seeking acquisitions for the sole reason of what the organization thinks it can get from it, means that it’s unlikely the organization will ask ‘how can we contribute to its future growth’ and ‘do we have compatible cultures so that the leadership will fit and be a positive influence (rather than a destructive force)’ – all they see is their ‘dream’ of dollar signs and just lose complete focus in the frenzy for profit maximization.

 

Sadly the focus on mergers and acquisitions has become very polarized – taking place for two very basic reasons (1) the perceived financial gain for the ‘buyer’ (and often, only, with a short term focus) and (2) the feeling of power it brings to the ‘buyer’ – i.e. I’m more powerful than you – I’m buying you. The very real danger with this approach is that the culture of the acquisition company has often already turned negative on the ‘buyer’ long before the acquisition is finalized and is often so ‘broken’ that the acquiring company don’t have a chance of turning the culture around.

 

It’s simple human psychology – but since the buyers ‘eyes’ only see the dollar signs, they forget that it’s the human capital that makes the company a success. Failing to ‘buy over’ the employees with the deal ultimately leads to a total disaster and a lose-lose for everyone involved; and yet too many organizations, who should know better, continue on this destructive path.

 

The current trend on only focusing on short-term wealth creation loses sight of the very basic human aspect of all successful businesses and is a sorry reflection on how blind today’s corporate boards and shareholder institutions have become to the very basic fundamental ingredients of business success.

 

Yet as Martin highlights “if you have something that will render an acquisition company more competitive, however, the picture changes. As long as the acquisition can’t make the enhancement on its own – ideally – with any other acquirer, you, rather than the seller, will earn the rewards that flow from the enhancement. An acquirer can improve its target’s competitiveness in four ways: by being a smarter provider of growth capital; by providing better managerial oversight; by transferring valuable skills; and by sharing valuable capabilities,” (p.44).

 

This is where the smart money should be investing in organizations and their leaders who look at how they can add true value to the acquiring organization. This is the win-win scenario and if ‘sold’ correctly during the acquisition process will lead to a positive culture and an excited ‘joint’ workforce – looking to be ‘stronger’ together than they were apart. This isn’t about ‘power’ but synergy.

 

Finally Martin mentions how “right now, CEO Mark Zuckerberg is hailed as a business genius, Facebook has become one of the most valuable companies in the world, and his shareholders are perfectly happy to watch him fork out $21.8 billion for a company (WhatsApp) with a handful of engineers and $10 million in revenues. As long as the stock price keeps rising because the base business is prospering, acquisitions don’t have to actually make sense. But history shows that when things turn sour for the base business – think of Nortel, Bank of America, WorldCom and Tyco – shareholders start looking more closely at acquisitions and asking, What were they thinking? That’s why it pays to have a strong strategic logic for your acquisitions, even when the market isn’t asking for it. And what the acquirer puts into the deal determines the value that comes out of it,” (p.48).

 

References:

 

Martin, R. L. (2016). M&A: The One Thing You Need to get Right. Harvard Business Review, June, p.42-48.

Are Leaders Failing Organizations?

Martin Reeves, Simon Levin and Daichi Ueda investigated the longevity of more than 30,000 public firms in the United States over a period 50 year span and the results were stark: businesses are disappearing faster than ever before. Where they found that “public companies have a one in three chance of being delisted in the next five years, whether because of bankruptcy, liquidation, M&A, or other causes. That’s six times the delisting rate of companies 40 years ago. Although we may perceive corporations as enduring institutions, they now die, on average, at a younger age than their employees. And the rise in mortality applies regardless of size, age, or sector. Neither scale nor experience guards against an early demise,” (HBR, 2016, p.48).

 

Reeves, Levin and Ueda “believe that companies are dying younger because they are failing to adapt to the growing complexity of their business environment. Many misread the environment, select the wrong approach to strategy, or fail to support a viable approach with the right behaviors and capabilities,” (p.48).

 

But this is a simple failure in modern day leadership. The business environment hasn’t suddenly become changeable in the 21st century, business environments have always been changing – less we forget the industrial revolution, for example.

 

The problem is that leadership has become ‘lazy’ and reactive in too many instances. Developing dynamic strategies is nothing new – good leaders know that they need an agile, flexible organization to respond to changes in their market place or even outside their market place, when there’s an option to diversify and expand. This is leadership 101.

 

Sadly the basic rules of corporate governance are just being ignored. Look at the UK construction company ‘Carillion’ – who have recently been placed under administration. Fingers are being pointed in all different directions in the blame game – but if we put our feet firmly on the ground, it’s the leadership of Carillion who failed their company, not the UK government, and not anyone else.

 

Too many leaders today want to earn ‘fat’ salaries but don’t want to take the accountability that comes with the ‘job’. This just makes life way too easy and means, without accountability, these mostly ‘white middle aged men’ simply don’t care enough and leave their organizations vulnerable to failure, while living the high life.

 

Reeves, Levin and Ueda do give some tips for organizations to be more aware and agile – but this isn’t rocket science – and the boards of organizations just need to ‘care’ more about their organizations future.

 

Tip One: Organizations need to be realistic about what they can predict and control, what they can shape collaboratively, and what is beyond the reach of managerial influence. A clear example is the financial crisis of 2007-2008, during which risk created by subprime lending in the U.S. real estate market spread catastrophically throughout the global financial system.

 

Tip two: Organizations need to look beyond what their firms own or control, monitoring and addressing complexity outside their firms. CEOs must ensure that their companies contribute positively to the system while receiving benefits sufficient to justify participation. Consider Sony, which brought out the first e-reader three years before Amazon’s but lost decisively to the Kindle and withdrew from the market in 2014. Because it failed to provide a compelling value proposition that would mobilize key components of the publishing ecosystem – authors and publishers – it could offer only 800 titles when its e-reader launched. In contrast, Amazon initially sacrificed profits, selling e-books for less than what it paid publishers. It also invested in digital rights management to spur the growth of the ecosystem. With the support of other stakeholders, it launched with 88,000 e-books ready for download.

 

Tip Three: Leaders must embrace the inconvenient truth that attempts to directly control agents at lower levels of the system often create counterintuitive outcomes at higher levels, such as the stagnation of a strategy or the collapse of an ecosystem. They must avoid relying on simplistic casual models and trying only to directly manage individual behavior, and instead seek to shape the context for behavior.

 

Good tips by Reeves, Levin and Ueda though slightly full of ‘MBA speak’ rather than simple understandable language. Leadership is not rocket science and using fancy language doesn’t change that fact. For me it still goes to the concept suggested by Jim Collins of “having the right people on the bus, getting the wrong people off the bus, and ensuring everyone is in the right seat” – and this is especially true for leadership.

 

Sadly I think too many organizations are in a cycle of bad leaders developing bad leaders – with their employees simply fed up and just doing what they have to do to survive day-to-day. If organizations can’t shake themselves up then shareholders need to start taking some accountability and demanding change.

 

Until organizations get back to a cycle of great leaders developing great leaders, organizations will continue to fail on a regular basis – and the bad, unaccountable leadership will blame anything else but themselves – and we must stop being naïve and believing them.

 

There’s a great quote that states “never push a loyal person to the point where they no longer care” and organizations have been doing this to their employee base for far too long – and suffering from the consequences.

 

Reeves, Levin and Ueda do highlight how “in society, complex adaptive systems require cooperation in order to be robust; where direct control of system participants is rarely possible. Individual interests often conflict, and when individuals pursue their own selfish interests, the system overall becomes weaker, and everyone suffers. Trust and the enforcement of reciprocity combine to provide a mechanism for organizations to overcome this quandary. To leverage the power of trust, leaders should consider how their firms contribute to other stakeholders in their ecosystem. They must ensure that they are adding value to the system even as they seek to maximize profits,” (p.55).

 

For those that can influence the future of organizations – owners, shareholders and corporate boards – let’s pause to assess our leadership and not settle for anything but ‘excellence in leadership’.

 

References:

 

Reeves, M., Levin, S. and Ueda, D. (2016). The Biology of Corporate Survival. Harvard Business Review, Jan-Feb, p.46-55.

Do You Dislike Your Boss?

Times have changed over the last five decades. There was a time where organizations had to develop and secure the best leaders to retain their best talent. Although poor leaders existed, they were often quickly identified by a high turnover of staff in their area – as employees voted with their feet.

 

Yet more recently and especially after the global financial crisis jobs have been scarce in many industry sectors, globally, with supply outstripping demand and hence poor leaders have been able to entrench themselves in many organizations, both large and small, as employees are less able to ‘vote’ with their feet anymore.

 

This is bad for everyone – organizations, employees and stakeholders and the only winners are the bad leaders - where way too many are able to ‘survive’ in today’s global economy, as many employees are ‘forced’ to put up with their poor dysfunctional behaviour.

 

According to the most recent Gallop ‘State of the Global Workplace’ study, half of all employees in the United States have quit jobs at some point in their career in order to get away from their bosses. The figures are similar or even higher for workers in Europe, Asia, the Middle East, and Africa.

 

The same survey, consistent with previous ones, also shows a clear correlation between an employee’s engagement (that is, motivation and effort to achieve organizational goals) and their relationship with the boss. Where 77% of employees who said they were engaged at work described interactions with managers in positive terms (for example, my supervisor focuses on my strengths).

 

What’s really worrying is that research has shown that an engaged workforce is a key driver of organizational success, and yet according to Gallop, only 13% of employees worldwide fall into that category.

 

Manfred Kets de Vries asks in a Harvard Business Review article: “What are these ‘bad’ leaders doing? Frequently cited grievances include micromanaging, bullying, avoiding conflict, ducking decisions, stealing credit, shifting blame, hoarding information, failing to listen, setting a poor example, slacking; and not developing staff. Such dysfunctional behaviour would make anyone unhappy and unproductive. However, whatever sins your boss commits, managing your relationship with them is a critical part of your job. Doing it well is a key indicator of how effective you are.”

 

Across the globe there are too many demotivated employees and their organizations seem unable or unwilling to try to shift the balance. The problem often starts right at the top with corporate boards and shareholders only focused on the short-term , where a ‘culling’ of the poor leadership would not be good for the share price in the short-term – although it would, if done correctly ensure much greater returns in the long-term, than they will get keeping the status quo.

 

The short-term focus mind set is destroying the very fabric of developing world class, efficient leaders who can develop their organizations to completely new levels of performance and innovation; two key factors required for competing in the global 21st century market place.

 

Kets de Vries offers some basic tips and tricks for employees who work for ‘bad’ bosses;

 

“Research has shown time and time again that practicing empathy can be a game changer in difficult boss-subordinate relationships, and not just as a top-down phenomenon. Experts such as Steven Covey and Daniel Goleman emphasize the importance of using this key aspect of emotional intelligence to manage ‘up’. Where neuroscience also suggests that it’s an effective strategy, since mirror neurons in the human brain naturally prompt people to reciprocate behaviours.

 

Second - Look at yourself. People who struggle to work well with their bosses are nearly always part of the problem themselves: their behaviour is in some way preventing them from being recognized and valued.”

 

However there is a naivety with these suggestions. With the first ‘tip’ many poor leaders just ‘lap up’ the empathy and actually don’t reciprocate it – rather taking the empathy as ‘tacit recognition’ statements that they are in fact ‘great’ leaders. These people refuse to accept their weaknesses and hide them behind all the poor traits that were listed above.

 

Sadly if these simple steps don’t work and you don’t have a solid case to take to your HR department – and remember it will have to be solid, with factual evidence and not conjecture and opinion. Then most employees start to just go through the motions at work and try to minimize contact with their boss – hoping that by playing the waiting game their boss will move onwards and upwards or move preferably out completely. The problem with this strategy is that during this ‘playing for time’ phase your relationship is unchanged at best, or deteriorating at worst, as from the poor leader’s perspective you’re not ‘putting in the effort or being a team player.’ Which they use against you to make life even more miserable.

 

Often it’s not the best strategy to play for the time when the boss leaves – but play for time when you can leave and use the time actively seeking alternative employment – specifically at a time while you are still feeling positive about yourself, your self-worth, and your future ambitions. Since being stuck in a ‘playing for time’ scenario for too long can have a negative psychological effect on you and ultimately your health.

 

There is definitely strength in numbers – but often in business it seems to be everyone for themselves. If a group of people can go to leaders they trust and ‘flag’ the poor leadership traits they are experiencing and have some constructive solutions, then maybe, just maybe, your voices will be heard. But it’s often a very risky strategy and you find those people who have promised to be ‘right behind you’ – are, when the time comes, so far behind you, you can’t see them for dust.

 

There’s a great quote that states “don’t push a loyal person to the point where they no longer care” – too many poor leaders are doing that on a daily basis around the world and sadly it’s a lose-lose scenario for everyone involved.

 

I just hope that key stakeholders will take a stance soon to bring effective leadership back into the workplace.

 

References:

 

Kets de Vries, M.F.R. (2016). Managing Yourself. Do You Hate Your Boss? Harvard Business Review, December, 2016. P.97-101.