When leaders fail

(Part 1)

No one is perfect, certainly not the founders and/or leaders of family businesses. Driven and charismatic, they have grown their companies by the sheer force of their hard work, personality and talent. Some have become practically synonymous with their companies, many of which are household names.

But leaders may fall victim to hubris, thinking that they can do no wrong, until the unthinkable happens.  They may hang on to power for too long—undermining any potential successor—all the way to the grave. They may become so used to dominating the market that they become blind to new trends, until they are forced to play catch up, as seen in formerly giant computer companies vis-a-vis nimble upstarts.

Leaders may even fall prey to personal weaknesses, evidenced by powerful men finally ousted as sexual predators, their reputation now unsalvageable.

In their book “Inspiring Leadership,” from which much of the following discussion is taken, IMD, Switzerland Global Board center director Didier Cossin and Stewardship Asia Centre CEO Ong Boon Hwee discussed the pitfalls of stewardship and suggested ways for leaders to manage these in a proactive manner.

For family business leaders, maintaining a stellar reputation is paramount. The 23rd richest person in the world, Li Ka Shing of Hong Kong’s CK Hutchison Holdings, said, “A good reputation for yourself and your company is an invaluable asset not reflected in the balance sheets.”

“It takes 20 years to build a reputation and five minutes to ruin it,” said Warren Buffett, third richest in the world.  “If you think about that, you’ll do things differently.”

Cossin and Ong discussed the unfortunate auditing Arthur Andersen did for their client Enron, leading to an indictment on obstruction of justice in 2001.  Four years later, the US Supreme Court reversed the firm’s conviction, but it never recovered its tarnished reputation.

In contrast, when Toyota had to do a worldwide recall of its vehicles because of defective parts in 2009, the founder’s grandson, Akio Toyoda, apologized profusely and vowed to regain public confidence. Today, Toyota continues to be recognized as a global leader.

“The most important means of bolstering and maintaining your reputation is to walk the talk. Toyota’s story shows that reputation assets must be sustained by continuing proof of excellence—quality products and services, integrity in dealing with stakeholders, safety and security.  Insisting on excellence lies at the heart of great stewardship,” said Cossin and Ong.

Great stewards also prepare well—and early—for leadership transition.  Realizing that no one lives forever, General Electric’s Jack Welch said, “Choosing a successor is the most important business decision you will ever make.”

In the Philippines, the third-generation curse has been evident in many companies.

Cossin and Ong described two cases of failed transition: Wang Laboratories’ founder, An Wang, in choosing his unqualified son as his successor led to company bankruptcy; and the Bancroft family conflict over their business Dow Jones when Rupert Murdoch made the family a tempting offer to sell.

Family feuds also harm the company, all the more when leaders engage in conflict among themselves.  Cossin and Ong mentioned the infamous conflict among the Kwok brothers of Hong Kong’s Sun Hung Kai Properties, and the bitter lawsuits among Gucci heirs, which led to the sale of their once-storied empire.

Contrast these failures with Estee Lauder and her husband, Joseph, who groomed their son, Leonard, to take over their family business.  Estee took the back seat when Leonard became CEO. In turn, Leonard groomed his son, William, and then became chair emeritus when William replaced him as executive chair in 2009.

“We think in decades,” said Leonard.  “Our competitors think in quarters.”