Why do Boards bet the Company on a new CEO?
It looks like Marissa Mayer will be another high-profile CEO casualty. Mayer was appointed CEO of Yahoo in July 2012, after a 13-year career at Google. Yahoo’s problems were well known and several CEOs had come and gone with nothing to show for their tenure. After co-founder Jerry Yang stepped down in 2009, Carol Bartz, Chairman Roy Bostock, Tim Morse, Scott Thomson and Ross Levinsohn have all had a shot at turning around the company without success!
Mayer was the 20th employee at Google and had a reputation of running a tight ship. Fast forward to 2016, Yahoo is still struggling four years after her appointment. Plans for a tax-free sale of the ‘golden egg’ – shares in Alibaba – were rejected by the authorities. Yahoo share price has been a reflection of the value of their holdings in Alibaba, whose shares have been volatile. The remake is not working, however the auction of Yahoo internet assets currently underway has sparked some investor interest in the stock. Last month Warren Buffet, vide Berkshire Hathaway has backed a bid to participate in the second round of bidding, so it looks like an asset sale will allow Yahoo to return some cash to investors.
Ron Johnson was a notable CEO casualty. The head of Apple’s retail business under Steve Jobs, Johnson was made CEO of J.C. Penney (JCP) in November 2011 when activist shareholder Bill Ackman (a year earlier acquired a US $900 million stake) pushed their Board into accepting the appointment. Much has been written about JCP during this period when Bill Ackman seemed to managing the Board and Ron Johnson the company. A lot of the commentators blamed Ackman for taking the Board of JCP for a ride. However a deeper dive reveals that JCP had tried several strategies to halt declining sales performance but nothing worked. The Board seemed desperate for a magic wand, which Ackman waved in front of them. Ackman got them to agree to a radical plan to reposition the stores under the stewardship of Johnson. While the frustration at the fallout is justified, blaming Ackman is grossly misplaced. The repositioning exercise was a disaster. Johnson’s vision was to create a new and lucrative style of retail with high-end ‘shops’ of specific brands and replacing the frequent mark-down sales – a staple of JCP – with round-the-year, “fair and square” pricing. A total of 19,000 employees lost their jobs during Johnson’s time [he started with from 134,000 employees] and in April 2013, Johnson was fired as the CEO and replaced by his predecessor, Mike Ullman.
When the business frame is broken, tinkering at the edges is not going to work!
JCP got into the discounting downward spiral and could not find a way out. Johnson basically said, “My ship - My Order” and almost took the ship down with him. Yahoo has been struggling with its business model, or as we say Business Frame for years. When the business frame is broken even a talented CEO cannot fix it. Warren Buffet expressed this neatly when he said, “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”
Are companies over-reliant on the CEO to drive performance?
Yahoo and JCP were both in a desperate situation and brought in an external CEO to fix the problem. One wonders what senior management and board members did or did not do that got them into the mess in the first place. This is why it’s so important – from an early stage - to harness the talents and resources of the entire company, senior management and the Board. Technology companies seem to do this quite naturally. Board and senior management have “skin in the game” and everyone seems to be pulling in the same direction. This sense of vision, or purpose, what we refer to as Passion, coupled with Realism and Energy-Action-bias drives success. These are qualities that allow Entrepreneurs to navigate dangerous and uncharted waters. “My ship - My Order” just doesn’t work in today’s Volatile, Uncertain, Complex, Ambiguous and Hyper-Connected (VUCA-H) world.
Is Leicester City F.C. Rewriting the Rules of Management?
Football clubs are not run in a consultative way and typically the Manager rules all-powerful. That is until the team hits a stretch of poor results and the Board decides on a change. At Manchester United, David Moyes (July 2013 to April 2014) and Louis Van Gaal (July 2014 to May 2016) were only told of their dismissal after the decision was leaked to the media. That says something about the culture of the club. Much has changed following the departure of Sir Alex Ferguson (November 1986 – May 2013) who in his time there established comprehensive control. Now it seems there is a serious disconnect between the Board and the CEO. It will be interesting to see if Jose Mourinho, just appointed as Van Gaal’s replacement, will find success. Mourinho is also a strict disciplinarian, not unlike Van Gaal and Moyes before him. Will this management style work?
Another approach adopted by Claudio Ranieri Manager at Leicester City since July 2015 is reflective of a new management style. He has a much more consultative style. Google, who in many respects is changing the rules of business, in a recent study found that team performance was enhanced with psychological safety – team members feel safe to take risks and be vulnerable in front of each other. These findings are impacting established theories on management. Our own research on successful Entrepreneurs reveals nine characteristics that are important (and learn-able) or what we call entrepreneurisms. The Leicester City team displayed many of these entrepreneurisms; Self efficacy, Risk taking, Passion, Learning, Realism, Persuasiveness, Opportunism, Innovation and Energy-Action bias. Defending deep, hoping not to concede an early goal and waiting for a counter attack opportunity is a risky strategy, but realistic given the resources at the club’s disposal. What a remarkable season they had. Only three defeats from 38 games, with 23 wins and they conceded 36 goals, only 1 more than Tottenham Hotspur and Manchester United, who had the best defensive record.
A culture change is also underway at Real Madrid, where Rafael Benitez (June 2015 – January 2016) was replaced by former star-player Zinedine Zidane. Although not in command for the full season, Real Madrid have done well, winning the 2016 Champions League final against Atlético Madrid and finishing behind Barcelona in the Spanish La Liga. Outgoing Manager, Benitez had a reputation of being a control freak, which was resented by the players. Zidane brought back the fun in the game and seems to have convinced Cristiano Ronaldo to abandon his plan to leave the club.
What is Entrepreneurial Management?
It starts with having the right people in the organization with a shared vision of where they are going. Most startups only have a vague idea of what they are trying to do, which gets refined over time, through what we call a Business Frame. The leadership needs to provide appropriate motivations to their people. These motivations take the shape of policies, procedures and technologies – which we call the infostructure. Adopting the appropriate entrepreneurisms and putting in place the infostructuralmotivation will enable companies to move past pocket initiatives and energize the entire organization.
[This article appeared in the print edition of THE EDGE, June 6, 2016]