In one of the most intriguing articles I’ve read in a long time, The Economist’s Capitalism’s unlikely heroes suggests a different perspective on the rise of activist hedge-fund investors. These brash and vocal billionaires take small positions in public companies and act to fix mismanagement by trying to convince other shareholders to support cost-cutting, spin-offs, and returning cash to shareholders.

Unlike buy-out private equity, the activist hedge funds buy only a small amount of shares, and so they neither burden the target with loads of debt nor strip companies of their assets (that’s so 1980s). Unlike Wall Street investors, activists get actively involved in management decisions. Naturally, companies’ chiefs abhor them. Critics call them vultures. Boards try to poison-pill them.

More interesting than the acrimony between companies’ top executives and tormentors like Bill Ackerman and Dan Loeb is the phenomenal rise in the level of activity of these activists’ funds. According to The Economist, they’ve got $100 billion in their war chests (about 20% of all hedge-fund capital inflows in 2014). Last year they launched 344 campaigns against public companies including P&G, Apple, Microsoft, Pepsi, and even Netflix. As shocking as it may sound, one out of two companies on the S&P 500 index has shown an activist shareholder on its stock registry in the past five years.

Why is there such an increase in activists’ funds? Have companies gotten worse and caused an immune response?

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If you were to see a newspaper headline such as “Breathing Jumps in Beijing, Even with Pollution,” you’d think it awfully odd. After all, Beijing’s population is rising, and everyone breathes as long as they can. More people, more breathing. Pollution doesn’t diminish breathing’s popularity.

You’d be right that such a headline would be odd, even if the headline appeared in one of the world’s great newspapers; say, the New York Times. Yet exactly that oddity appeared, in the Times, when 2015 was still crisp and new: “2014 Auto Sales Jump in U.S., Even With Recalls.”

Don’t worry. This essay isn’t about illogic in journalism. It’s about illogic that pollutes business, too. It’s about a dragon I thought I slew not long ago in Success Is In a Word. (Another headline: “World Doesn’t Heed Indignant Strategist.”)

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No one adopts a strategy expecting it to fail, yet strategies fail. That doesn’t happen on purpose but it also doesn’t happen by accident.

Christele Canard, founder of Switched On Leadership, interviewed Competing.com co-founder Mark Chussil for the cover-story subject why strategies fail. You can read and download their wide-ranging discussion here.

Christele and Mark talk about:

  • Why smart strategists believe their strategy will work and what happens when they find out in business war games that it won’t.
  • What happened when Mark built a strategy decision test technology (patent pending) and his own strategies didn’t work so well. (Hint: first, he looked for a bug in the software. There was no bug.)
  • Why people are so comfortable thinking inside the box and what it takes to get them to go outside.
  • What’s wrong with “I did this and the result was that” reasoning.
  • How people can expand their strategic thinking with a simple question.
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The cult of celebrity is not only present in entertainment, sports, and politics, it’s in business as well. CEOs that get the most attention aren’t necessarily competing better than the rest. In the news doesn’t mean in the know.
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Here’s a true story. A friend of mine, Bruce Hamilton, won the Professional Bowlers Association (PBA) championship some years ago. He laments that his skill is in bowling and not in golf. His prize was nice but the Professional Golf Association (PGA) championship paid seven times as much in that year. Would we say the PGA champ was seven times as skillful as my friend?

In 2013, the PGA champ was paid 28.9 times as much as the PBA champ, up from seven times. Would we say that skill at golfing is growing faster than skill at bowling?

How many top golfers can you name? How many top bowlers? (I can name one.)

We have, in business, a cult of celebrity rather than a cult of strategy. Try this: who’s the CEO of Facebook and who’s the CEO of DuPont?

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“The Sound of Competing” Episode 3: Culture Doesn’t Replace Strategy


Every corporation has a corporate culture. Is yours a competitive advantage?

Many pundits, especially those from the “soft” social sciences (psychology, sociology, anthropology), make a case that corporate culture is a critically important source of competitive advantage. They call for open and empowering cultures that they say uniquely encourage innovation and success. Yet, just as attitude can take you only so far in soccer if your stars are injured, culture can take you only so far within the competitive economics of the industry. Companies creaking with old-fashioned management styles have succeeded over decades. Startups wielding the most open, progressive, and innovative cultures have failed overnight.

The one aspect of culture which is critical is how information flows inside the organization. The reason: whether your management is an authoritarian, cigar-chomping Lord High Everything or an enlightened, organic Collective of Nice Dedicated Associates, without information you wear a blindfold during the big game.

In the podcast you’ll hear about the category of information that’s the most crucial to decision makers, why it is scarce, and what it takes to make it flow.

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“The Sound of Competing” is a new podcast from Competing.com. It’s conversations from Ben and Mark, plus the occasional reckless guest. It’s remarkable. It mixes serious concepts with humor. It’s edgy without sacrificing critical thinking. It’s the antidote to the silly and shallow. Also, there are titanic battles between good and evil. A ping pong match between two strategy giants resulting in commentary smart enough to listen to.

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“The Sound of Competing” Episode 2: Harmony Versus Confrontation

Facing reality is more important than being nice.

Aversion to confrontation is embedded in many national and corporate cultures. Unfortunately, that niceness feature can turn into a nasty bug when it enables bad strategy and bad management.

Coca-Cola recently decided to issue stock that will dilute ownership of existing stockholders in order to pay huge compensation to top management. How huge? $24 billion. Twenty-six states in the USA spend less than that each year. That seems excessive, to put it mildly, even if you assume Coca-Cola’s top executives are the most talented people in the world.

Warren Buffett, Coca-Cola’s largest stockholder, abstained when the Board voted even though he thought it excessive too. He didn’t want to create a rift with management. That’s the downside of nice. Too much harmony, too little confrontation, too bad for shareholders. Shareholders at other companies, too. “Well, Coca-Cola did it for their executives…”

Then there’s confronting reality. The culture of the large automobile companies in Detroit has long been notorious as good old boys who don’t rock the boat. Look at what happened to GM when it chose to keep product defects tightly under wrap rather than face the issue head-on. This year it will probably recall more cars in the USA than it will sell.

If you don’t create a safe forum to say, aloud and in time, that the king has no clothes, the rest of the world will do it for you, and not so nicely. It is not a mere business school cliché, as so many companies discover too late.

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“The Sound of Competing” is a new podcast from Competing.com. It’s conversations from Ben and Mark, plus the occasional reckless guest. It’s remarkable. It mixes serious concepts with humor. It’s edgy without sacrificing critical thinking. It’s the antidote to the silly and shallow. Also, there are titanic battles between good and evil. A ping pong match between two strategy giants resulting in commentary smart enough to listen to.

Subscribe by RSS feed

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“The Sound of Competing” Episode 1: Vision or Overconfidence?


Vision or Overconfidence?

Distinguishing between a vision (glory) and overconfidence (mirage) is important, critical, even imperative. Alas, it is also very tricky to do a priori; that is, before the fact. After the fact, we may be wiser. That’s one of the main arguments in Phil Rosenzweig’s new book, Left Brain, Right Stuff.

Rosenzweig makes valid points: no one thinks of him/herself as overconfident, and confidence, even in excess, may be the stuff that enables leaders to overcome resistance and skepticism. Still, we have encountered numerous occasions in which leaders, powerful executives, ignored early warning signs and crashed into mirages.

What does overconfidence look like? Or, perhaps, taste like. Coca-Cola is going all the way with its wonderful new toy, the Freestyle machine. These new and expensive dispensers are being deployed world-wide. The machines allow people to mix 146 possible flavors. They are incredibly fun and creative for those who crave designer sugar water. They raise vendors’ beverage sales as much as 6%.

And they will probably change nothing. Listen to the podcast to find out why, and which companies seem more likely to fall into the overconfidence trap.

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“The Sound of Competing” is a new podcast from Competing.com. It’s conversations from Ben and Mark, plus the occasional reckless guest. It’s remarkable. It mixes serious concepts with humor. It’s edgy without sacrificing critical thinking. It’s the antidote to the silly and shallow. Also, there are titanic battles between good and evil. A ping pong match between two strategy giants resulting in commentary smart enough to listen to.

Subscribe by RSS feed

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