By Tim
Phillips
Warren
Buffet once remarked that it takes 20 years to build a reputation and five
minutes to ruin it. So Journalist Tim Phillips turns his eye towards the most
avoidable business disasters of recent history.
For
companies, “to be built to last, you
have to be built to change". E.g. Apple, Google.Often a set of events lead to a downfall, even
if there is nothing wrong with the entire system.It’s not what you do, but how you do it,
that counts.
CHAPTER-2 (WorldCom & Bernard Madoff’s
investment securities)- It wasn’t
enough just to be better. They had to carry on being better, every quarter,
forever. In doing so, they thought they were “too good to fail” and ignored people who pointed out holes in their
systems or balance sheets. They overstated their figures that bore little
relation to reality. So no matter how smart they were, it was only a matter of
time before something unpleasant was exposed. WorldCom group at one time was
world’s largest internet carrier but they filed for bankruptcy on 21July 2002.
CHAPTER-3 (Northern Rock Bank, Barings
Bank) - Companies tasted morphine,
and then it was very hard to come off them. Companies behaved like an obsessive
roulette player who keeps betting everything on black because that worked last
time. It kills some companies slowly, some quickly. But if this is the
strategy, it will kill you in the end. Northern Rock bank fell from grace due
to recklessness, facing bailout from Bank of England and later nationalisation.
While chasing a dream, there are two temptations : one is to believe you really
are as brilliant as people say you are, and other is not to ask too many
questions. We should not get tempted by any.
CHAPTER-4(Mr.Dunlap, CEO of Lily-Tulip
group, Scott Paper Co. and many more companies) :-
A quote from the movie Superman (1978) :-
“Superman : Easy miss. I have got you.
Girl : You have got me, fine. But who has got you?”.A modern large company
CEO, often live in the sort of palatial bubble that royalty used to enjoy.E.g. Mr.Thain
spent almost $35,000 for an antique commode during his Merrill Lynch office
redecoration.Whereas, Bill Gates even in his prime days always travelled
economy class, despite of being the head of world’s best money making company.
In some companies, the power that is thought to reside with shareholders
actually rests with the CEO.
CHAPTER-5 (Iceland’s banking sector)
- Earlier the Icelandic way was Spend
big, buy assets. Borrow more money and buy more assets. After the 2008
financial meltdown, everyone got bankrupt. Sometimes, leaders who join cult organisations
make bad decisions, not because they are stupider than rest of us, but because
the cult destroys their ability to perform critical thinking.
CHAPTER-6 (Lehman
Brothers collapse, Merrill Lynch collapse) - The
greater fool theory : You don’t have
to believe that what you are buying is worth what you are paying for it, as
long as there is someone else prepared to buy it from you for more than you
paid.
CHAPTER-7 (Merger between AOL and Time Warner in 2000) Some firms want to merge so much, that they
don’t see that it’s a terrible idea for them. They spend so much time merging
that they forget what they are meant to be doing. This throws both the
companies into reverse.In 2009, Time Warner announced that it was spinning off
AOL into a stand-alone public company.
CHAPTER-8 American
International Group (AIG) after the financial crunch, paid $165 million of its
government bail-out money straight back to the employees who were responsible –
as performance bonuses.
If you are a ship’s captain and there are
icebergs in the sea, your grand strategy for avoiding them should be that when
you are approaching an iceberg, you spot what’s happening and change course.
In Chapter2, the companies looked at the
iceberg and thought that they could plough right through it if they told people
it was smaller than it looked.
In Chapter3, the companies had avoided some
small icebergs, so they sailed full steam ahead at the biggest one thinking
that they can get past it too.
In Chapter4, the captain said the iceberg didn’t
exist and we believed.
In Chapter5, everyone agreed that even if there
is an iceberg, it was probably better to keep going straight ahead.
In Chapter6, people raced with each other to see
who could hit the iceberg first.
In Chapter7, the captains were so busy
quarrelling that they didn’t see the iceberg.
In Chapter8, some people thought they had built
a magic boat.
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