Chapter 1
Foreword
The stories recounted in the following pages are inspired by real-life events from various companies spanning diverse industries and locations worldwide. To protect the privacy of individuals involved, certain liberties have been taken to anonymise the protagonists and antagonists.
While the protagonists may have welcomed the opportunity for some free publicity showcasing their skills, the antagonists, influenced by their distorted perceptions (reminiscent of the Mandela effect), might have pursued legal action for defamation, both individually and collectively. Nevertheless, individuals are still welcome to step forward and reveal their identities voluntarily. As you will discover, hubris can blind and deafen, but unfortunately, it does not render anyone mute.
Furthermore, not all antagonists had malicious intent toward the companies they worked for; some exemplified Karl Kraus’s observation that ‘The opposite of good is not bad but well meant.’ This aligns with the English proverb, ‘The road to hell is paved with good intentions.’
To enhance readability and preserve anonymity, I have devised a fictional company, Chaotic Operations Limited (ChOps Ltd.), where I amalgamated the most disastrous Kaikaku decisions. This name not only encapsulates the company’s inherent chaos but also its operational approach.
On the one hand, the events at ChOps Ltd. required a touch of dramatisation to infuse the stories with flair. On the other hand, detailing the consequences of certain decisions and actions taken by the antagonists had to be tempered. I found myself wincing and experiencing physical discomfort when articulating the sheer magnitude of their foolishness—or, to put it more diplomatically, their irrationality.
The subtitle of this book, ‘[Kaikaku] at its worst: How greedy shareholders and incompetent managers can ruin a company’, warrants clarification.
The first part, ‘[Kaikaku] at its worst’, conveys two key points:
1) Tragic events: The worst outcomes are never indicative of success, glory, or joy.
2) Inevitable downfall: The worst always leads to unhappiness and despair.
The second part, ‘greedy shareholders’, evokes at least two negative emotions:
1) Envy: The portrayal of shareholders as wealthy may lead readers to feel a sense of envy, suspecting that they are less affluent than these Scrooge-like figures.
2) Schadenfreude: The term ‘greedy’ implies that these individuals already possess considerable wealth but desire more, inviting a sense of satisfaction if they were to suffer losses.
The third part, ‘incompetent managers’, stirs several reactions:
1) The backseat drivers: These individuals may not have experience in running things themselves, yet they adamantly assert how things should be managed.
2) The relentless: Some may revel in the downfall of those in positions of power, feeling vindicated in their belief that managers are incompetent and deserving of their fate.
3) The critics of authority: Socialists, communists, and anarchists may view managers with suspicion, seeing their failures as evidence of the inherent flaws in hierarchical structures.
The fourth part, ’ruin a company’, is readily understandable.
Now, dear reader, before you jump to conclusions, let me assure you that it is just a (rather poor) joke! The title of this book was crafted to evoke the same response that advertisements, mass marketing, and mass media have conditioned you to expect for decades: sensationalism. Defined as ‘the presentation of stories in a way intended to provoke public interest or excitement, often at the expense of accuracy’, this description largely holds true for this book—though I strive for accuracy above all else.
Let us compare the current title to ‘A mid-sized company’s history: A treatise from an academic viewpoint’, which also elicits emotions and assumptions, such as:
1) Boredom: History lessons at school often evoke feelings of dullness and monotony.
2) Verbosity: The term ‘treatise’ implies a systematic and formal approach to a subject, suggesting that it cannot be condensed into a few concise sentences.
3) Loftiness: The word ‘academic’ tends to convey a sense of intellectualism that may feel inaccessible to many.
Given this comparison, I hope you will forgive my choice of title for this book.
With that in mind, the main focus of this book is Kaikaku (Japanese for ‘radical change’), which happens to be double-edged:
1) Sword: When wielded deliberately or recklessly, it can bring chaos and destruction to anything in its path.
2) Lancet (aka, scalpel): However, when skilfully employed, it can bring healing and positive transformation.
Hence, the outcome hinges on your intentions and competence. With noble intentions and years of honed skills, Kaikaku can yield the desired results. Conversely, even with the best intentions, lacking the necessary expertise can lead to calamity and failure.
Observers who cannot discern your thoughts can only judge the outcomes of your Kaikaku implementation. Therefore, if your intentions are noble, you must:
1) Communicate your intentions clearly and solicit feedback to ensure others perceive you as a healer rather than a sawbone.
2) Utilize leadership principles, such as the Swiss Army’s widely employed ‘command, check, correct’ (3C) approach. Despite its effectiveness, it has not been commonly taught in business administration textbooks, likely due to all three words starting with ‘K’ in German.
3) Remember Winston Churchill’s counsel: ’However beautiful a strategy, you should occasionally look at the results.’
If the antagonists had heeded just one of the above three suggestions, much suffering and financial harm could have been averted, and ChOps Ltd. might not have met its downfall.
For the sake of readability, the book predominantly uses male pronouns. Additionally, all the companies amalgamated into ChOps Ltd. were entirely male-dominated. Introducing female managers solely for the sake of gender inclusivity would be a significant departure from reality and would undermine my experiences with female managers. Throughout my extensive career, I have never encountered a company in disarray where women held leadership positions. Therefore, the following observation remains pertinent:
’Companies with a predominantly male leadership should recognise that organisational principles tailored to a baboon troop, where dominance often correlates with high testosterone levels in male leaders, may not necessarily optimise the efficiency of managing a sophisticated corporation.’
This aligns with the Lehman Sisters Hypothesis, which suggests that due to their tendency to be more risk-averse than men, companies led by women are less likely to face bankruptcy.
This excerpt is from the glossary/sources section, which I highly recommend browsing as it clarifies topics and expressions used throughout the book.
Chapter 1
‘Wealth never survives three generations.’
‘Rice paddies to rice paddies in three generations.’
‘From shirtsleeves to shirtsleeves in three generations.’
‘Clogs to clogs in only three generations.’
‘From stables to stars to stables.’
Chinese, Japanese, North American, English and Italian proverb
Regardless of the wording, only 30% of affluent families successfully transfer wealth to the second generation and merely 10% to the third. Globally, there is a staggering 70% failure rate in wealth transitions unaffected by country, tax laws, or economic cycles.
This begs the question: What factors contribute to this epidemic, eroding family wealth?
- 60% stem from breakdowns in communication and trust within the family unit (including lack of reliability, sincerity, competence, and communication).
- 25% result from inadequately prepared heirs.
- 12% arise from other factors like taxes or legal issues.
- 3% occur due to failures of financial professionals to interpret taxation, governance, and wealth-preservation matters accurately.
The third-generation curse also struck ChOps Ltd. My observations suggest that if a company manages to endure beyond the third generation, even if barely, the fourth generation often exhibits renewed enthusiasm to drive the company forward. They are eager to contribute and innovate within the company that has been passed down to them, whether by the preceding generation or a benevolent liquidator.
The third-generation family members exhibit stronger egos than their predecessors, particularly when it comes to nitpicking over trivial matters, leading to prolonged and fruitless debates ending in agreeing to disagree. However, once ego overrides common sense, the game is over. Egomania had such a detrimental impact on the company that I felt compelled to voice the following remarks at ChOps Ltd. shareholders’ meetings:
‘As individuals, each of you boasts an IQ well over 100. However, once you gather in a shareholders’ meeting, your IQs plummet to two digits, with the best-case scenario being a mere 70!’ – What truly tested my composure was that while each member individually agreed on the best course of action, they staunchly refused to come to a consensus during the assembly. This echoes the sentiment expressed by Mrs Banks in the 1964 Disney film Mary Poppins: ′Though we adore men individually, we agree that as a group, they’re rather stupid’.
‘Sir, indiscriminately using I.O.U.s like confetti doesn’t seem to be the most prudent approach to financially supporting subsidiaries,’ I remarked. The chairman readily signed hard comfort letters and irrevocable payment orders by the dozens for loan sharks willing to finance underperforming subsidiaries of ChOps Ltd. These loan sharks were actually well-known banks providing mezzanine capital. When you factored in all the associated fees (handling, deployment, etc.), ChOps Ltd. ended up paying interest rates between 15% and 20% per annum on these loans. One might colloquially refer to such a chairman as ‘one sandwich short of a picnic’...
‘Promethean!’ I quipped acidly after the chairman suggested achieving higher profit margins by raising retail prices and lowering input costs. His puzzled expression prompted me to clarify, ‘I simply meant to acknowledge the groundbreaking nature of your idea, sir.’
’Nepotism: We promote family values here almost as often as we promote family members.’ - Larry Kersten
I whispered this quote to the general manager of one of ChOps Ltd.’s subsidiaries upon hearing about the promotion of a third cousin of the founder’s grandniece.
Becoming morons, accepting usurious interest rates, and stating obvious facts are all unmistakable signs of various degrees of irrationality, which, according to the Cambridge Dictionary, is ′The fact of not using reason or clear thinking’.
You might wonder, ‘Is there a cure for irrationality?’ Well, I doubt it. If there were a remedy against irrationality, the parents of ‘X Æ A-12’ might have taken it—or perhaps been advised to—before naming their child in such an eccentric way. However, such a cure would undoubtedly be in high demand: politicians, mainstream media journalists, and their experts would likely require a monthly boost against irrationality...
In Chapter 2, we delve into the choices available to shareholders during the creation of ChOps Ltd., focusing on voting rights within the shareholders’ assembly and the pivotal role of a code of conduct, which serves as the bedrock of good governance.
Chapter 3 delves into the influence of C-level managers, members of the advisory board, and workers’ council members on ChOps Ltd.’s demise. Real-life examples illustrate the mistakes made, followed by explanations of how such disastrous conduct could have been avoided.
Chapter 4 explores a company’s life cycle from inception to succession, highlighting key steps that must be taken from the outset to avoid the fate of ChOps Ltd. Every founder eventually passes on their enterprise, whether to a successor or, regrettably, to a liquidator. We examine various options and strategies for this transition to ensure the best possible outcome.
In the Analysis and Conclusion section, we outline the root causes of doom and gloom at ChOps Ltd.
