Friday, February 11, 2011

Does an autocratic CEO perform better than other CEOs?


Hold on! Before you burn me at the stake for invoking the unforgivable fanatic, allow me to confess that I have no love lost for this clipper megalomaniac. And I’d hope that none ever follows the narcissistic madness of the man known for many years as F├╝hrer und Reichskanzler. Well, political correctness aside, truth in the real world is quite to the contrary. Despite whatever the world might wish for, the fact is that there is at least one quintessential and ubiquitous quality of this Austrian born German deuce that is followed to the tee by leaders of some of the largest and most successful corporations of the world – a quality that had, before WWII, led to Germany becoming the superpower it was; a quality that now is assisting leaders to ensure that their corporations are amongst the most productive and most efficient business units this world has ever seen! Read on and you might catch on to the wave.
William Clay Ford stepped down as Ford’s CEO in 2006, the carmaker was all drenched in a big bowl of hot soup, with the worst market scenario. Detroit had totally given up on Ford. The world had too. William Ford tried hard, but there were no respectable names in the auto space willing to take charge as Ford’s CEO and digest the numbers that threatened Ford’s very existence. Imagine this: During the first half of 2006, while Nissan earned $1800 per vehicle, Toyota and Honda pocketed about $1,400 apiece. Fly westward, and the numbers turn turbid. While GM lost $333 per unit, DaimlerChrysler lost $1,100 during the same period. And Ford? It bled the most – a disquieting $1,400 per vehicle.

Given the state then, what followed in the succeeding years was baffling – despite Ford being the first one expected to crumble first, since December 2008, GM and Chrysler were the ones forced to live through the ignominy of a Fed bailout plan of $110 billion. As for Ford, it managed to become the first one to bounce back into the black sans a revival package, having made $2.72 billion in net profits during FY2009 – the very year GM & Chrysler filed for Chapter 11!

And how in heavens did this astounding turnaround happen? The answer, the single change agent, as experts and researchers globally have accepted now, was the recruiting of one man – the most authoritarian CEO that Ford had ever seen after Henry Ford – Alan Mulally. This man, a veteran engineer at Boeing (who was in charge of the Boeing 777 development project), took up the task to play Captain America for Ford Motors in September 2006. Forget about never having been exposed to labour issues in his life (Ford had had enough of it with the UAW in place), or even having never seen a car being assembled before, this new boss of Ford, had never had the chance to make a single pitch as a salesman during his entire career. But what made him victorious was not just his desire to win, but in his viewpoint that what he – and not his team – believed was right. His style was autocratic and simply “results oriented”. When Mulally walked in as CEO, Ford was known as a maker of pick-up trucks and the Mustang. Despite popular displeasure, he forced his strategic planning teams to get a line of more efficient & smaller engines in place. It worked for the company. In his first two months at the company, he went ahead pledging $23.6 billion against Ford’s assets including its logo. Ford’s management disagreed. But Mulally was convinced, and that was enough. The idea of doing away with Jaguar, Land Rover, Aston Martin and Volvo, was his brainchild.

During his first day at work, Mulally went ahead to check Ford’s product lineup. When the engineers laid it out, Alan enquired why the iconic Taurus brand was missing. “Well, we killed it. We made a couple that looked like a football. They didn’t sell very well, so we stopped it,” said one Ford official. To this, Mulally retorted, “What do you mean, you killed it? You stopped the Taurus?!? You’ve got until tomorrow to find a vehicle to put the Taurus name on because that’s why I’m here.” Mulally had no statistics to justify why he wanted the Taurus back in the 21st century. He didn’t need one, because that was him – the authoritarian saviour of Ford, the latest rage in Detroit.

Mulally wanted results. Period. Today, Ford’s employees in US carry plastic cards with four goals printed on one side (which Mulally puts as the “Expected behaviors”) and “One Ford” written on the flip side. “This is me. I wrote it. It’s what I believe in. You can’t make this sh!# up.” He loves taking daily reports and every Thursday, starting 8 am, you can see all there is in the name of bashing up of non-performers in the conference room that Ford’s employees call “the Thunderbird Room”. There are eight clocks on the wall, each representing one time zone and the chair he sits on, he likes calling it the “Pilot’s seat”. Did someone mention narcissistic again?

Under Mulally’s reign of a little over four years, Ford’s Mcap has increased by 370.31% – enough reasons for shareholders to love this 65 year-old imperious monocratic boss.

Mulally is only one of umpteen despotic CEOs who have prospered and made billions for their companies. Steve Jobs, the face of Apple, is unmissable. Once out of Apple after a power struggle with the-then top management (the top brass considered him a “control freak”), he struck back, and is today the strongest living example of how an insistence on total control over your company and employees (call it totalitarian leadership if you like) and a focus on innovation can keep the clock ticking, with the sound getting sweeter by the second. There was a time when during late 1997, only a year after Jobs had taken over as Apple’s Interim-CEO (he had returned to Apple in late 1996), someone had asked Michael Dell during a conference what he would have done had he been in Jobs’ shoes. Dell’s reply to this was, “I’d shut Apple down and give the money back to the shareholders.” Then, Apple was just worth $3.1 billion, while Dell was worth $28.1 billion. 13 years later, Dell has become smaller with an Mcap of $26 billion (as of February 8, 2011), while Apple’s Mcap has grown by 10,456.13% to touch $327.24 billion and it is today the most valuable IT company in the world, and the second most valuable on the bourses (after ExxonMobil).

What Jobs did was to use a tyrannical leadership style – fire and force at will – to ensure that his employees delivered products that consumers lusted after, in an ever-evolving digital world. It has worked so far. Writes the American author Andrew Keen’s in his best-seller titled, The Cult of the Amateur, “There’s not an ounce of democracy at Apple. That’s what makes it a paragon of such traditional corporate values as top-down leadership, sharply hierarchical organisation and centralised control. It’s Steve’s company – pursuing his vision, at his pace, with his team, making his products. Without Steve Jobs’ authoritarian leadership, Apple would be just another Silicon Valley outfit...”

There are many names from history books that testify why oppressively domineering leaders stand for excellence, not mediocrity. Even today, ExxonMobil’s dictatorial CEO Rex Tillerson runs the oil major in the same way it has been run for years by the likes of John D. Rockfeller and Lee Raymond – preeminent and absolutist control over decision-making, whether it comes in the form of a justification as to why Exxon should not bet on non-fossil fuel or why the company should continue betting on Qatar for more than 13% of its reserves. The credit for the highest profits made by any company in the history of mankind goes to Rex of Exxon. Under him, despite fluctuating oil prices, during just the past 4 years, Exxon has reported total net profits of $142.61 billion. Today, Exxon is the most valuable company in the world – with an Mcap of $423.23 billion.

Even research supports the cause of authoritarian leadership style, especially during times of crisis. A 2006 Harvard Business School case, titled, Harley’s Leadership U-Turn, proves how under Rich Teerlink (ex-CEO of Harley-Davidson), the organisation took a U-turn from near extinction. It says, “When an organisation is under extreme pressure – so much so, that one wrong move can mean its collapse – authoritarian leadershipmay very well be necessary.” In another paper titled, Is Servant Leadership Part of Your Worldview?, by Dr. J. Howard Baker of University of Louisiana, he states, “An authoritarian, command and control model of leadership may be very effective for stopping something, destroying something, or conquering something...” He goes on to praise Jack Welch, the authoritarian former Chairman & CEO of GE, one of the most successful CEOs of all times, under whose 13 year-long tenure, GE’s market value appreciated by 2,828.5% to touch $410 billion. [This is something which Jeff Immelt, his democratic-participative leadership styled-successor has failed at; GE is valued at $221.9 billion today – down by 45.9% in a matter of six years.] Enough proof that authoritarian leadership does much good for investors.

From Larry Ellison, who has been written about as being an autocratic indomitable CEO (in one such book titled, ‘The Oracle of Oracles’, by Florence Stone, he has been described as “Ruthless, volatile, arrogant, impatient and autocratic”) to IBM’s former CEO Lou Gertsner whose shout-and-command policy helped save IBM (when he became the CEO in April 1993, IBM was struggling to survive, having lost tens of billions since 1990; under him, IBM’s Mcap increased by 476.67% in a decade to $173 billion, while its stock price increased sevenfold, to $101), there are names that have become immortal as leaders who have used lashing at will.

The CEOs I have mentioned embody the typical American ego, and they only have two bad habits – a hard-to-believe vision and an unbelievable fantasy for total control. And the reason all this despotism works is because experience has shown these iconic legends that humans, in general and most of them, will cheat and shirk work at the first possible instance. Of course, there will be exceptions – like you, obviously – who would not shirk work and who would not need to be threatened, to be productive. But these will remain, as the saying goes, exceptions. Once you truly start believing that the only way an organization can be ruthlessly productive and profitable is to be as ruthless to its people, that’s the moment you’ve qualified in my diary as one of the world’s best CEOs.