The Ten Commandments for Business Failure - Don Keough [36]
After the firm came tumbling down, the Federal Reserve Bank of New York intervened and organized a bailout among a hastily assembled consortium of creditors to prevent a disorderly collapse that could have affected trillions of dollars in contracts and shaken market confidence around the world.
The brilliant system the three men had devised and smoothly sold amounted to little more than a giant roulette game, but because people are so willing to put their faith in experts, their absurd scheme was accepted by some of the wisest men on Wall Street.
More recently, in 2007, we’ve seen financial markets in trouble because they were following statistical models that grossly underestimated how risky subprime lending could be. It was explained as “model error.”
It wasn’t model error. It was human error. Anybody with good gut feelings could have predicted that a lot of loans to people without any measurable means of repaying them was bad business. But the geniuses of the financial world kept planting their magic beans. And everybody was surprised when the money trees didn’t grow. What folly!
The narrow perspective of what appears to be genius is often the inverse of wisdom.
This is especially true in the management of a large enterprise. Management is a craft, not a science. Beware of those who try to mathematize and quantify human behavior. We had managers and consultants at The Coca-Cola Company who saw people merely as numbers. They were not successful. You simply cannot put numbers on everything. It is, to my way of thinking, a failure of imagination.
During my lifetime I’ve also encountered many experts who try to evaluate a business relative to all the other businesses in that industry and come up with a plan to maximize profit based on industry averages. This is a terrible mistake because each company within an industry should be striving to differentiate itself, make itself in some way unique, not average. I never thought of Coca-Cola as a soft drink company. In my mind it was—and is—The Coca-Cola Company. The others are not “imitators,” as my forebears in the company insisted. They just aren’t selling Coca-Cola.
At the end of the day, after I’ve listened to all the marketing and financial geniuses who have paraded through my office, I find myself agreeing with the economist Ludwig von Mises: “Statistical figures… tell us what happened in a nonrepeatable historical case.”
Of course, I must acknowledge that consultants and outside experts are often called on to simply validate a decision that has already been made by a manager insecure in his authority. I have always been fascinated by what happened at Chrysler after the death of its founder and leader, Walter P. Chrysler. Managers were so unsure of themselves that they held séances to try to get in touch with Chrysler to find out what the founder would have done. There is no evidence that they ever reached him. And had they been successful, he likely would have fired them all.
Managers involved in restructurings, common in the aftermath of mergers or in shrinking a business, often must confront the painful process of laying off employees. Rather than communicate in an honest and straightforward manner with the affected people, they sometimes try to place the blame on the new business plan designed by an outside consulting firm. I find this the height of cowardice. If you commissioned the new plan, it’s your baby. You are responsible. In the end, if you are unwilling to assume responsibility, if you abrogate your authority to a third-party expert, you will not succeed in carrying out the new plan anyway.
I always made it a rule that no bad news, including firing people, could be delivered by e-mail or a memo or a telephone call. Any subject matter that carries strong psychological impact deserves face-to-face communication.
In his final letter to the General Electric stockholders Jack Welch advised, “Hate the bureaucracy in your organization.” Therefore—my next commandment.
Commandment Eight
Love Your Bureaucracy
WHEN I FIRST