Transitioning To An Organization That Survives Beyond the Founder(s)
The Transition Point
From the dawn of time, ego has dismantled relationships, families, countries, governments, initiatives, sports teams, music groups, nonprofits, small businesses, large corporations, etc. Nothing is immune from ego, even large corporations that have a system of checks and balances with a c-suite team and board of directors. In this blog, I will relay anecdotally on some executives who suffered so much from their ego that they jeopardized once very successful businesses. The companies are recognizable to most folks who were born before 1995, so the names of the executives will remain anonymous. As a consultant reporting to the actual executive or one of his peers, these words reflect first-hand observations of behaviors that resulted in detrimental events for each company. All too often I have witnessed ego stand in the way of an organization's achievement of growth. I have seen executives ignore numerous phenomenal ideas and solutions due to ego.
The head of a company founded in the 1800s was prospering and a participant in a key financial index. The time was a transformation period where disruptors in the consumer space had challenged the long-held position of the company as a destination for a variety of consumer goods. The trend had been identified and observed that consumer patterns were changing; observations and sentiments were gathered over years, not months. Several studies (separately done by both internal research and by external researchers) indicated that the generational change was not a blip on the map, an anomaly; rather, a bona fide change in consumer behavior. The Executive was “advised” by his team and his Board alike that a plan of attack must (not should) be devised to address the consumers upon which the Company relied. The Executive did not react to the entreaties citing “we have been in this situation before and are still here today”.
The fall was quick, exacerbated by doubling down on the expansion and the attendant inventory demands of opening new stores. In a matter of months, the Company was in dire straits, the CFO resigned with a rare to non-existent public statement citing arrogance and a blind eye towards reality exhibited by the CEO as the principal reason for his early departure from the Company which he had a decades-long tenure. Shortly after his departure, the Board delivered a vote of no confidence to the CEO. Three weeks later, the Company filed papers declaring itself bankrupt.
There were key items that the CEO disregarded, to the amazement of his team and outside advisors.
The one that most confounded those around him was that he had personally recruited and interviewed for three key positions: 2 on his Board and one in the Company. Over the 11-month tenure of these three individuals, lauded by investors and competitors alike as key competitive advantages for the Company, the CEO repeatedly ignored the well-founded and documented analysis of strategic directions brought forward separately and together by these three individuals. Why their recommendations were not acted upon by the CEO to this day is unknown. As Steve Jobs said, “It doesn’t make sense to hire smart people and tell them what to do, we hire smart people to tell us what to do”.
The Founder and CEO of a 35-year-old company that rose a technology innovation wave catering to consumer needs disrupted an industry that had long serviced those consumers. Convenience, reduced cost, and customer-focused scheduling were the hallmarks of this disruptive service. Retail locations sprung up across the US and internationally, through acquisition, to service the demand and collateral retail offerings wanted to associate with these brands' locations to tap into the walk-in traffic generated.
Three years before its precipitous fall, a disruptor presented a concept that was a direct threat to the Business. The CEO led a team that evaluated and did diligence on the proposal. The team recommendation at the conclusion of the diligence period was to proceed with the acquisition and incorporate it as a strategic offering, possibly even a direction of the Company. The CEO, two days later, indicated that after careful consideration of the recommendation he decided not to proceed. The team was dismayed, to say the least; 2 members of the team resigned that week and after the expiration of the non-compete clause joined the disruptor which had caused significant distress to the Company.
In a post-mortem review by the auditors who concluded the Company was a going concern in their annual audit letter, it was noted that the CEO indicated that he was the architect of the disruption that led to the Company’s rise and the offer from the new Company didn’t address all the things that he personally had done when he rose to power. This CEO clearly had an issue with humility. As Jack Welch said, “Face reality as it is, not as it was or how you wish it to be”.
A 50-year-old company that became the most well-known influential international retailer.
The company was unable to adapt to a changing market because the executives did not listen to the smart people on their teams. Smart people predicted consumer trends, and they stood abreast of technology changes, which directly impacted consumer buying habits. They did not listen to the idea of "wish lists" that provided the ability for extended family to provide "needed and desired" items to new arrivals, pre and postnatal. Delivery was coordinated with actual birth dates, so products could be phased, coordinated with others/color schemes, and not duplicated. All of these ideas were provided to executive management, all of whom were male executive long-timers, but they ignored these ideas because they ran counter to "norms".
The company owned the toy industry niche for decades, and it represented the largest aggregator for younger generation merchandise in the world. They never believed that they would lose their status. Availability was their Achilles heel. However, near the turn of the century, if a product wasn't in your local store, you had to wait. With the web, you didn't have to travel and you got the product in sequence with all other demands in the world. Analyzing consumer behavior showed that time was an issue for consumers, and as general merchandise outlets expanded their assortment of younger generation products, the company experienced a serious impact. In the past, the company's stores were destinations, not general merchandise retailers. The consumption for shopping got squeezed starting in the 90s, and, as a result, consumers were more focused on spending time, rather than money.
The ego of the executives caused them to ignore evolving consumer trends to shop online. When sales plummeted in their stores leaving them with excess inventory after major events, they finally decided to add e-commerce as part of their strategy. The company suffered because management was set in their ways and wouldn't listen. The data was clear, and it was stupidity, ego, and 30 years in the business without evolving and adapting that caused the company's demise - 50 years of building wiped out in less than a decade!