Company leaders cannot expect leniency, says Robert Heller, if, in their pursuit of shareholder value, they drive through corporate strategies which end in disappointment or even disaster.
Uneasy lie the heads that wear the crown. That's the clear conclusion from a harsh fact unearthed by the Lex column in the Financial Times. Lex notes that half of the 10 worst performers among the 100 companies in the FT-SE index have dispensed with the services of a chairman or chief executive since 1 January 1995 - and another two of them have been involved in an unceremonious changing of the senior management guard.
Perhaps it's too early to fasten on these departures as trends. The situations (and the degree of mismanagement) vary greatly between, say, Forte, British Gas, Inchcape, Allied Domecq and United Biscuits; but the obvious common thread is failure before the newish totem of 'shareholder value'. Chief executives have increasingly been running scared of underperformance in the share price, and now their fear seems justified.
In all these cases, strategies have been tried in the stock market and found wanting. In some cases strategies specifically designed to elevate the shares have simply misfired and backfired. The approved pattern is to shed activities superfluous to whatever the master strategist has selected as the corporate core.
That is simultaneously strengthened, mostly by acquisitions, as the company tries to obey 'Welch's Rule'. The widely revered chairman of General Electric, Jack Welch, insists that his businesses should be first or second in their chosen markets - or exit, pronto. The logic is that of the earlier 'Heller's Law', which argued that most markets have room for only three profitable competitors: two leaders and one specialist.
Apply these dicta to a case like Allied Domecq, and you see one reason why that company's strategy has become bogged down. Despite the expensive purchase of Domecq, Allied is still, on most counts, third in its chosen world spirits markets to two other generalists, Grand Metropolitan and Guinness. There's a further drawback - Allied came late into a global game where the two leaders had already begun to suffer. The miracles of marketing attributed to the twin champions as new executive talent tackled neglected brands amounted to pushing up the prices. Volume moved little. The wonders worked by such a strategy are of limited duration.
Sooner or later, the higher prices choke off demand. If prices rise more than perceived value, the customers turn elsewhere - hence the catastrophic fall in brown spirits sales in the US market. Empty honey pots (or whisky bottles) provide poor sustenance: Allied may have chosen the wrong core at the wrong time.
Similar strategic misfires, ranging from US expansion (UB) and terrible supply contracts (British Gas) to uncertainty about where the core lay (Forte) and overdependence on motor retailing (Inchcape), help explain other disasters. It follows that fearful chief executives should be doubly or trebly careful about which strategies they select. But that's the middle of a three-stage management process. This begins with methodology - who initiates the strategic discussion, and on what basis? The third phase, after the actual choice, is execution - who implements the strategy, and how?
In practice the programme is (1) chief executive initiates (2) and decides (3) and drives the execution. That makes the boss's own execution (in another sense of the word) fair enough if the strategy fails. Others will, of course, be involved. The chairman (in the case of British Gas) may be a separate and formidable power. Other directors will join the strategic debate. Consultants are more than likely to be employed. Their work may be brilliant, but again the handling matters acutely. As Robert Waterman (of Peters and Waterman fame) points out, a marvellous report doesn't mean a marvellous strategy. Often, the chief executive only fancies some of the consultancy findings.
Understanding and acceptance of the strategy are also too often confined to a small coterie, which all but guarantees low commitment and poor execution further down. Working for McKinsey, Waterman was startled when a Japanese client produced 'a small team' of 20 people to work with the Westerners. But the successful outcome - a plan wholly enacted with the total support of management - convinced Waterman always to ask for large insider teams who would take ownership of the strategy. Many minds improve the broth; just as important, the lower echelons have a personal stake in the strategy.
Their jobs depend on its success just as much as that of the chief executive.
Few career events are more unsettling than having your horse shot beneath you - and the sacrifice of one-time corporate cores is both painful and risky. Thus, after selling its half of Carlsberg-Tetley, Allied will have exited into its new world from both brewing, its original core, and food (the core of Lyons, Allied's other half). Very few cases exist of successful swaps of one core with another, let alone two. Changing bases risks being a bet too far: the trouble with a strategy that bets the company is that gambles often lose. Then the entire company is lost, not just the head that wears the crown.