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In spite of having rows of executives and advisors with millionaire salaries, the big companies can make decisions that, in the best of cases, are disconcerting and, at worst, suicidal.
How is it that such organizations, led by well-paid CEOs and with enough money to hire the best employees and consultants get into such problems?
An example of this is Carillion – a British multinational construction company – whose collapse this year left thousands of people unemployed.
This huge company signed contracts with such narrow profit margins, that the delays it had resulted in huge losses .
If we go back a bit, we have Nokia, which once dominated the mobile phone market, until it failed to recognize the competition that would come from the iPhone.
There are a series of classic traps in which large companies. Call them the “deadly sins” of the corporate world.
In August 2008, Gary Hoffman entered the offices of Northern Rock, a credit bank based in Newcastle, in the north of England.
He had been appointed executive director of the mortgage institution, which had just been rescued by the government that year after being on the verge of collapse.
One of his first impressions were the “palatial” offices of the place and the even more luxurious headquarters that was under construction.
“The leadership had lost contact with the real world,” says Hoffman.
“They occupied large offices, separated from their colleagues, and it was physically difficult for their colleagues to talk to them.”
Northern Rock had experienced a rapid expansion offering attractive mortgage contracts and financing those contracts with short-term loans.
“They got carried away by their own personal and corporate ambitions,” he says.
In the opinion of Hoffman: “The higher you rise in your organization, it is increasingly important that you have your feet on the ground.”
“And, if you’re not careful, people are not going to tell you when things start to go wrong.”
Hoffman is now with insurer Hastings, where he says that management spends a lot of time talking to staff and looking to resolve issues for them.
“It may simply be the food in the cafeteria,” he says.
Bill Grimsey is a retail sales veteran who has witnessed the time when a large company got into trouble.
In 1996, he was appointed executive director of the British DIY warehousing chain Wickes, which was in danger of collapsing due to accounting fraud .
He was able to get new financing for the company and changed his corporate culture.
One of the techniques he found positive was spending one week each year working at a different branch and learning about the problems that the staff was having.
“You should not underestimate the influence of the leader in the business,” he says.
He has crossed over with CEOs who govern instilling fear , leaving their managers frightened of losing their jobs and only “doing what they have been ordered to do”.
Grimsey labels “dictatorship” the way an executive director handled his company, where the client “was barely mentioned.”
Under those circumstances, Grimsey indicates that staff can take desperate measures, such as reporting false figures to keep the boss happy .
Gary Hoffman has a similar argument. Managers should be very careful when interacting with their staff, especially when approaching them with problems.
“When you hold the power of executive director and shut them aggressively, they often do not come back.”
“Anyone can grow quickly,” says Hoffman.
“You should make sure that when you are growing very fast you are not taking a lot of risks,” he recommends.
He gives an example to low-cost airlines, where customers are thrilled about cheap prices, but perhaps where some of the airlines are not charging enough to survive.
Last year, both Monarch Airlines and Air Berlin went bankrupt after registering heavy losses.
Executive directors must ensure that everything they do is “anchored in the principles of profitability,” which sounds obvious.
Worse, Hoffman explains that there are bosses who can be blinded with the obsession to grow only to grow .
In the sales sector, it is more common than it seems that retailers forget something else that is obvious: the customer.
Grimsey says: “When they become carefree and self-sufficient, they start offering the same things day and night, without realizing that consumers change in terms of their style and interests and their behavior patterns.”
According to Grimsey, the boards spend too much time on the salaries and bonuses of their top executives .
“If you look at the history of the last 15 years of the corporate world in the UK, particularly in retail, particularly in public companies, these people have become greedy.”
“You have to abandon greed in high places and start sharing, you have to spread the profits throughout the organization.”
Highlights the John Lewis store chain as a better model to pay employees.
Each year, plant workers receive their share of the profits (even though, in March of this year, the John Lewis Society announced that there would be no bonuses for the fifth consecutive year).
André Spicer, professor of organizational behavior at the Cass School of Business Administration, says that the way senior executives are paid can be part of the problem.
“Significant” parts of the salary package are composed of actions, which can be charged too quickly, he says.
“Short-term results are often imposed on long-term survival,” he says.
In some companies “they concentrate a lot on creating a facade to make things look good,” says Professor Spicer.
This may include spending excessive amounts of money on brand initiatives or introducing fashions and management news .
All those things can involve spending too much on advisors who, in some cases, “outsource responsibility,” he says.
Enron, the giant energy company in the United States, is a good example of a company that put together an impressive facade that hid their problems , says Professor Spicer.
The company had been praised in the press for having revolutionized the energy industry, but it had been hiding billions of dollars in debt and collapsed in 2001, at that time, the most resounding fall in US corporate history.
Professor Spicer warns that it is “much easier” to change the image of a company than to make real changes.