The Hollywood Boss is No Work of Fiction

My Financial Times column 09/27/10
The Hollywood boss is no work of fiction

By Philip Delves Broughton

In Money Never Sleeps, the just released sequel to Wall Street, Gordon Gekko tells us that “idealism kills deals”. It is the most pungent line in the film, and a bracing rejoinder to anyone who argues that business is about “doing well by doing good”. In fact, the whole film, like the original, is a perverse homage to appalling behaviour.

But whereas Gekko is fictional, Mark Zuckerberg, the founder of Facebook, is the all-too-real central character in The Social Network, the other business world blockbuster of the autumn. Mr Zuckerberg is not just portrayed as ambitious, a reasonable trait in the founder of a start-up, but also as vengeful, vicious, duplicitous and devoid of even the most basic social skills.

Interviewed by Oprah Winfrey last week, Mr Zuckerberg said of the film: “A lot of it is fiction, but even the film-makers will say that. They’re building a good story. This is my life, I know it’s not that dramatic. The last six years have been a lot of coding and focus and hard work. But maybe it will be fun to remember it as partying and all this crazy drama.”

It is a story we have seen before among the technology greats of the past 30 years. The young Bill Gates, by most accounts, was a similar kind of nightmare, screaming at his staff and elbowing aggressively past rivals as he built Microsoft.

When he founded Apple, Steve Jobs was said to push his developers to work ungodly hours and to treat both colleagues and competitors with contempt.

And yet how much of this makes it into the management books? Where is the guru who tells us that the way to get the most out of an organisation is to ratchet up the pressure until everyone is desperate and frazzled? And then to run psychological rings round them?

Why is it left to Hollywood to tell us what we already know, that those who succeed in business are not always the most likable people? That to succeed on the epic scale of a Zuckerberg, Gates or Gekko, may require some deeply unpalatable traits?

I once heard Steve Schwarzman, the chief executive of the Blackstone Group, talk about the importance of competitiveness in his business. To win in private equity, you really have to hustle. Fair enough.

But then came the incident last month, when he compared President Barack Obama’s threats to raise taxes on private equity investments to “when Hitler invaded Poland in 1939”. He has since apologised but when a multibillionaire testily compares a tax rise to the second world war, that spirit of competitiveness has evidently gone too far.

But what is the ordinary manager to make of it all? There you sit in a negotiation seminar learning about creating “win-win” situations, while part of you suspects that, as one corporate lawyer once put it to me, “the only win-win situation is one where the same person wins twice”.

There you are downloading the latest rules on diversity and sexual harassment, while Mr Zuckerberg, whose last venture before Facebook was a website that invited users to rank female students at Harvard by physical attractiveness, rockets past towards billions.

In Hardball: Are Your Playing to Play or Playing to Win?, one of the few books to address this issue of business’s dark side, George Stalk and Rob Lachenauer, two consultants at Boston Consulting Group, wrote: “Winners in business play rough and don’t apologise.” They argued that hardball is not about breaking the law or cheating, but about relentless competition, bordering on brutality, and absolute clarity of purpose. It is certainly not about “people skills”.

The Hardball way lists five “fundamental behaviours of winning”: “focus relentlessly on competitive advantage”; “strive for extreme competitive advantage”, don’t be happy just being better at something, but try to be much, much better; “avoid attacking directly”, because unless you have overwhelming force, you are better off being sneaky; “exploit people’s will to win”, by motivating them to become slavering, hyper-competitive beasts; and “know the caution zone”, play to the edges of the pitch, but not beyond.

They then list five strategies to be deployed in “bursts of ruthless intensity”. These are: “devastate rivals’ profit sanctuaries”; “plagiarise with pride”; “deceive the competition”; “unleash massive and overwhelming force” once you have it; and “raise competitors’ costs”, the final turn of the ratchet after you have destroyed their profits, copied, tricked and beaten them unconscious.

“Hardball is tough, not sadistic,” they write. “Yes, you want rivals to squirm, but not so visibly that you are viewed as a bully. In fact, you want the people in your world – the same ones you demand straight answers from – to cheer you on. And many of them will, as they share the riches your strategies generate.”

Fail at hardball, or its more extreme derivations, and you may not even have the consolation of having fought a decent fight. But succeed, and you will have all the resources in the world to buy your way to redemption – however Hollywood depicts you.



Paul Volcker!

Yesterday the T-Rex/Solon of US finance ripped into the current financial system – including business schools in his critique. To quote:

“We had all our best business schools in the United States pouring out financial engineers, every smart young mathematician and physicist said ‘I don’t want to be a civil engineer, a mechanical engineer. I’m a smart guy, I want to go to Wall Street.’ And then you know all the risks were going to be sliced and diced and [people thought] the market would be resilient and not face any crises. We took care of all that stuff, and I think that was the general philosophy that markets are efficient and self correcting and we don’t have to worry about them too much.”

See the whole thing here.

Read highlights here.

When To Turn a Blind Eye to the Facts

My Financial Times Column 10/20/10

When to turn a blind eye to the facts

By Philip Delves Broughton

The good news from the Gulf of Mexico is that the worst predictions of environmental disaster after the Deepwater Horizon oil rig exploded are unlikely to be fulfilled. It’s still awful, but not as awful as first feared. But when you think back to the worst days, as BP struggled to cap the well against a cacophony of abuse, there were two kinds of decision making on display.

For the men and women fighting to stop the leak, there were the messy, practical challenges to be met, and decisions to be made based on the evidence. And then there were those who made the decision early to pound away at this latest example of “Big Oil” gone wild.

President Barack Obama was caught between the two, trying to make decisions based on the complex set of facts, while others claimed to know exactly what decisions should be made, and compiled the evidence accordingly.

Businesses are often caught in the same trap. Ideally, you want to base your decisions on sound evidence. But often, managers make a decision then rustle up the evidence to support it. As Peter Tingling and Michael Brydon of Simon Fraser University wrote recently in the MIT Sloan Management Review, it is the difference between evidence-based decision making and its ugly sibling, decision-based evidence making.

British schoolchildren are taught the story of Lord Nelson at the Battle of Copenhagen. When told that his commander was signalling for him to retreat, Nelson raised a telescope to his blind eye and said: “I really do not see the signal.”

Within a few hours, the Danish fleet was defeated. He had made the decision to fight and moulded the evidence to fit. “If you get the outcome you want, then everything is fine,” says Prof Tingling.

But in a world that venerates data-driven decision making, whether in financial services or sports management, managers are often loath to admit that they still take the Nelson approach to make the decision first and find the evidence later.

Profs Tingling and Brydon found that evidence is used by managers in three different ways: to make; inform; or support a decision. If it is used to make a decision, it means the decision arises directly from the evidence. If it is used to inform a decision, evidence is mixed in with intuition or bargaining to lead to a decision. If it is used to support a decision, it means the evidence is simply a means to justify a decision already made. They also found that evidence is often shaped by subordinates to meet what they perceive to be the expectations of their bosses.

There are two dangers to letting decisions trump evidence. The first is when decision making is simply ill-informed. Ideally, a decision that contradicts the evidence is an inspired hunch, formed by experience, like Nelson’s. In the worst case, it is the product of ignorant bias.

The second danger is that once your employees know that you, as a manager, are more interested in finding evidence to fit your conclusions rather than seeking out truth, it infects a company with demoralising and destructive cynicism.

When Herman Miller designed the Aeron chair, consumer focus groups were hostile. But the company ignored them and went ahead with production anyway. The chair was a huge hit. The company was capable of taking evidence and successfully ignoring it.

In other companies, however, the cult of data-driven decision making leaves so little room for personal beliefs that people just tailor evidence to fit pre-made decisions.

At Ford in the 1950s, Robert McNamara, then chief executive, demanded data on everything. Interns would cut up newspapers and paste them into binders so executives could point to the voluminous research that went into each decision.

Vince Kaminski, who led Enron’s research division, has spoken of the frustrations of having 50 highly skilled mathematicians picking apart Enron’s risky deals only to be ignored by executives who prized volume above all else.

So what is a manager to do? How do you encourage the use of data, while leaving room for the occasional inspired decision? One solution is to be more flexible in how you categorise decisions. Not all will require the same degree of evidence.

Another is to weigh the costs of gathering evidence. Is it always worth it? If not, don’t fudge it for appearance’s sake. Admit that you are trusting your well-honed instincts. This is especially true for those within your company. Sometimes you will have to come up with tendentious evidence for an external audience, which demands at least a charade of evidence. But don’t ever pretend for those inside. They will know better and punish the slightest deceit either now or well into the future.


Beware the Superstar Chief Executive

My Financial Times column 09/13/10

The fascination of the Mark Hurd drama is that it contains all kinds of mysteries. A month after he was pushed out of Hewlett-Packard, we still don’t really know why. Was it because he fudged his expenses? Was it because there were questions about an inappropriate relationship with a female contractor? Or was the company looking for a reason to dump a chief executive whose advocates on Wall Street were far outnumbered by HP’s demoralised employees? After five years of violent cost-cutting, had he outlived his purpose?

And then there is Larry Ellison’s decision to hire him as co-president of Oracle. Is it because he genuinely believes in his friend’s executive gifts and is lining him up as a successor? Or is it simply another example of Ellisonian trouble-making? Is he using the whole affair to stick one in the eye of a rival? It certainly seems as if he has HP dancing to his tune, filing a lawsuit to block the hiring of its former chief and looking Big Brother-ish in the process.

What we do know, however, is that in hiring Mr Hurd, Mr Ellison has hired a very particular form of CEO, who, aside from his intimate knowledge of a rival, may be entirely the wrong man for Oracle.

It comes down to the nature of Mr Hurd’s skills and record as a manager. At the two organisations where he has served as CEO, HP and NCR, he has been a cost-cutter. He arrived at flabby organisations that he was able to slash down to size. It is not work for the squeamish, and Mr Hurd proved himself a ruthless sacker, salary cutter and benefit trimmer. Margins improved, shares rose and Wall Street cheered.

At Oracle, he arrives at a company already in rude financial health. His main challenge, assuming HP’s lawsuit fails, is said to be completing the integration of Sun Microsystems into Oracle and building the overall company’s strength in hardware so it can fight head-on with HP. It is a growth and expansion challenge that is very different from any Mr Hurd has faced in the past.

Boris Groysberg, a professor at Harvard Business School, has written extensively on the distinction between cost-cutting and growth-minded CEOs, and the risk of hiring a “superstar” at one to do the other. In an article in 2006, co-written with Nitin Nohria and Andrew Maclean, he wrote: “The strategic skills required to control costs in the face of fierce price competition are not the same as those required to improve the top line in a rapidly growing business or balance investment against cash flow to survive in a highly cyclical business.”

They studied the CVs of managers in different divisions of General Electric and categorised them as “cost controllers”, “growers” or “cycle managers” on the basis of their experience. They then followed 20 of them into new jobs. They found that when the managers were hired to do what they had done before, cost controller job to cost controller job, for example, the companies they ran saw annualised abnormal returns of 14.1 per cent. When they were hired to do something else, say grower to cost-controller, the returns were negative 39.8 per cent.

A prime example was Paolo Fresco, a great success leading GE’s growth in Europe, who proved disastrous at Fiat when he took over as chairman in 1998. As a grower, at Fiat he focused on investments and acquisitions while the company’s liquidity problems piled up, leading to his eventual resignation in 2003.

By contrast, Carlos Ghosn, a non-GE manager, moved successfully from Michelin to Nissan because both jobs required cutting costs and streamlining the organisation. Hence, his nickname at Renault, Nissan’s partner – “le cost killer”.

The great rarity is the CEO who can cut costs and expand the business. Steve Jobs achieved it at Apple after he returned in 1997, stripping down a bloated company on the point of bankruptcy and then patiently rebuilding its entire product line and organisation.

Mr Groysberg’s other key insight emerged from studying star Wall Street analysts. In his book Chasing Stars: The Myth of Talent and the Portability of Performance, he wrote that star analysts at one business struggled when they were hired away to work at another. What recruiters and the stars themselves underestimate is the importance of the support networks that make them successful in the first place, the colleagues and contacts who enable their work. Unless they can be transplanted too, the superstar will often fade in a new setting.

If, once the hullabaloo of his firing fades, Mr Hurd can succeed in the very different setting at Oracle, he will have joined an extremely small executive super-group.