This Foolish and Destructive Obsession with Growth: Lessons from the Roman Empire (and Others)
Despite a litany of corporate failures there remains an obsession with growth driven by shareholder value which when you cut through the jargon actually means greed. In many ways the greed of shareholders is eclipsed by the greed of executive directors who communicate publically that their aim is to grow the business for the good of all concerned on the premise that growing the business is good. Yet, as we have learned and experience regularly, executive directors are often more interested in growing their own wealth base and achieving this very quickly. The old Japanese style business model which set out 1,000 year plans have been replaced with ‘here and now’ planning. In the UK the Thatcher years replaced traditional five year planning cycles with twelve month planning cycles. Within ten years this became a three month planning cycle; today it is almost hourly.
Generic expansion having proven to be a slow process, modern expansion strategy is fuelled by takeovers. Takeovers allow a company to grow both revenue and profits instantly giving the impression of good management. Inevitably the underlying problems of combining disparate businesses into one come to surface but by this time those who have been rewarded for stellar growth have moved on; or retired to their place in the sun; or have been locked up – but not without significant pay-offs. The staff and management of businesses taken over have little in common with their takeover masters and as a consequence of losing out on real senior management power bide their time for revenge.
The obsession with business expansion is often explained by the maxim ‘if you’re not growing, you’re declining’. Business schools back this up by charting the typical life cycle of products and businesses, suggesting that merger and takeover activity will lengthen the upward curve. However within a very short time-scale the absorbed profits of the newly acquired enterprise become history, and the new financial year is replaced with the dawning reality of increased costs of running an increased business. Head office becomes monolithic and tensions between those at the front end and those cosseted by a lack of customer exposure increase dramatically.
Sometimes the takeover gravy train comes off the rails as either availability of takeover targets dry up or the amount of money needed to fund them reaches such a colossal level that it is seen as financial suicide to continue. Sometimes the aphrodisiac effect of these immense deals become so potent that they go ahead anyway but soon after the whole thing unravels and both the target and the predator collapse. In some situations, expansion is fuelled by partnerships and franchise arrangements. However these take far longer than quick conquest and involve patience, hard work, and recognition that profit has to be shared for this to work and sharing is not something which is common in the recent corporate world. Yes, the sound bites may say ‘we’re all in this together’ but when it comes to financial reward that’s not the case.
It does not take a genius to work out that if I am working as hard as I can, but I am being paid a fraction of my bosses who appear not to care whether I turn up at work or not, my motivation will be low. Not just that, I learn to agree with everything and say yes to everything, and play the part of a loyal and committed worker, but I also learn that the most important person to look out for is myself. This is after all what I learn from my leaders.
At higher levels in many organisations motivation is extremely high, but often not in the way that leaders hope. The game in head office is to expand personal empires to the detriment of peers. More staff, bigger offices and larger budgets become the trappings Sonavel of success. Energy is expended on beating internal rather than external competition. It is often the case that when senior executives retire they are ill-prepared for life in the real world, as the only plotting they become involved in is who gets stuck with putting out the recycle bins on Thursdays.
The focus on short-term profitability and growth allows executive directors to amass fortunes in bonuses and shareholding undreamt of in the more austere approach of the past. The long haul is rejected in favour of the ‘I deserve this now’. Whilst there are only twenty four hours in any day whether you’re the chairman or the janitor, the disparity between the value of those twenty four hours for those at the top and those at the bottom of the organisation becomes so glaring that it creates fractures across the whole organisation; some obvious, most hidden. It’s easy to see your enemy if they come out in the open, but the latter part of the twentieth century and the early part of the twenty first century clearly demonstrates that if you have fewer resources than the ruling class, coming out in the open is not a good idea. Which is why guerrilla warfare is the most difficult to tackle.
As with Emperors, Dictators, and Prime Ministers, senior management eventually begins to believe they are infallible and those around them feed that illusion in the hope that some of their godlike aura may be transferable. They begin to act as though only they know and truly understand the meaning of business and how to make it grow. Decisions begin to be made with little or no reference to the reality of the workplace and rely heavily on employing highly expensive advisers to tell them what they want to hear – that they are visionaries, and that they will be enrolled into the legend that is the company.
In the financial services industry, where the availability of money makes it easier to spend and amass fortunes, collapse of organisations such the Royal Bank of Scotland (RBS), Anglo Irish Bank, Northern Rock, and HBOS are classic examples of corporate blindness towards risk and personal responsibility. It is easy to be reckless when it does not involve your personal money. Even failure is rewarded by handsome pay-offs, but only if you are at the top.