Emperor Tewodros II, who reigned over much of Ethiopia for a decade from the mid-1850s, was a visionary leader
His star rose as he unified a great deal of the country, abolished the slave trade, looked to undermine the excessive power of the Church and was vocal in his disapproval of battlefield mutilations. Yet as the years wore on, excessive power, a sense of God-inspired destiny and probably some mental imbalance lead him to become a monster of massacres and murders, as detailed in a gripping book, The Barefoot Emperor by Philip Marsden.
The pendulum often sways from recognition to obscurity, from undue heroism to disproportionate opprobrium, for human beings and institutions.
Continuing the royal theme, consider the British Royal Family. Following Princess Diana’s death in 1997, they were perceived as unsympathetic and out of touch with the nation. Seventeen years later, they are riding high with the support of 75% of British people.
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And so to the corporate and financial world. Assuming the pendulum that has swung too far will always swing back, which company is due for a fall? There are common threads in many examples – the hero CEO who turns into an over- controlling, hyped up central figure; over a decade in the job; the blind enthusiasm of investors/the public; a stream of acquisitions and the lack of an obvious successor.
I propose creating an index, called CRASH, based on companies where a minimum of two of the above factors apply. Its motto would be the Biblical quote: “I have seen everything that is done under the sun and, behold, all is vanity and a striving after wind.” Investors who shorted CRASH would be winners.
Tesco, captained by CEO Sir Terry Leahy, was the retailer of choice in the UK for a decade. Then it started losing market share to new competitors and, this autumn, discovered a £260m black hole in its accounts. Many blame his successors – but he was in power for 14 years and a gung-ho company culture takes many years to reverse. Something similar may be about to happen at SKF, the Swedish ballbearings makers, trans- formed by CEO Tom Johnstone, who is stepping down after 11 years.
Jeff Bezos’s Amazon is already in the index, not least because like Jamie Dimon of JP Morgan Chase, the founder has gathered a triumvirate of titles to himself: president, CEO and chairman.
A similar story is to be found at Fiat Chrysler Automobiles. CEO Sergio Marchionne turned around the Italian (and subsequently the American) car company. He proceeded to merge them. He hasn’t looked back from 2004 when he became CEO of Fiat. So far so good. In October 2014, he listed the shares of the merged entity on the New York Stock Exchange to gain access to larger capital markets, a necessary step on the road to creating the world’s largest car maker by taking over another target. Plus, last month, he engineered the resignation of Ferrari chairman Luca Cordero di Montezemolo and appointed himself.
Another example is Volkswagen. Martin Winterkorn has been chairman of the management board since 2007. He insists on personally signing off every model design change and refuses to speak English when dealing with investors. Last but not least is Simon Wolfson, CEO of retailer Next since 2001. When the Financial Times writes in an article that “as so often, Simon Wolfson at Next is showing how to do it”, you know his firm is a worthy component of the index.
Companies in CRASH might be taken out of the index if the CEO took on a fool (a reputable successor or chairman), like King Lear’s, to point out his conceit. If the company head actually listened to the fool – unlike Shakespeare’s famous king – we would slip them quickly into our BULL index, whose companies we would fervently buy.