Lesson #1 Learned from the Rise and Fall of Vanquished Companies

Lesson #1 Learned from the Rise and Fall of Vanquished Companies, July 3, 2013

David Garlock, Director Fahrenheit Finance

Both virtual and physical bookshelves everywhere are filled with management theory treatises written by leading CEO’s (e.g., Jack Welch of GE fame) and academics / consultants (e.g., Peter Drucker).  In my experience, it is rare to find a book that combines the principles of management with an analysis of the life cycle of an organization.  I found such a book in Good to Great to Gone, the 60 Year Rise and Fall of Circuit City by Alan Wurtzel, former CEO and Chairman of Circuit City.  The book is a candid case study and discussion of the good, bad and ugly aspects of corporate culture, leadership styles, management principles and strategies of the once dominant electronic retailer.

Alan sets forth twelve “Habits of Mind” and illustrates how these Habits of Mind impacted the 60 year life cycle of Circuit City. Habits of Mind are ways of thinking used by those who develop strategies that lead either to success or failure. This series of articles addresses my interpretation of each of those Habits of Mind. I have supplemented the information within the book with thoughts and ideas from other authors. 

As a former Budget Director of the subject company in the late 1970’s, I can validate Alan’s commentary on the company based on my interaction with the senior management and store teams during that time.  Many of his Habits of Mind also applied at my next career stop, Best Products, a former national catalog showroom chain, as well as to numerous other companies for whom I have provided restructuring advisory services. Both Circuit City and Best Products are but memories for their former customers and employees, but they left a great legacy of cautionary tales.

The first Habit of Mind:  Be Humble, Run Scared: Cautiously doubt your understanding of things.  Business success contains the seeds of its own destruction.  Worry about what the competition knows that you do not. Andy Grove, the legendary co-founder of Intel, got it right in his book Only the Paranoid Survive. (Wurtzel, 2012)

There is an old adage about Humility – “I know what I know, I know what I do not know, but it is that which I do not know of what I do not know that scares me.” Each of us must candidly assess ourselves on these three aspects of our personal knowledge.  Whether we may consider ourselves either a (1) subject matter expert; (2) skilled, seasoned executive or consultant; or (3) jack-of-all trades; we need to be humble in recognizing the limitations of our knowledge and ability to effectively deal with every situation.  The remedy I have learned is to:

• Surround yourself with smart people;
• Actively solicit others’ opinions;
• Actively listen to your smart people as you are formulating strategies and actions;
• Make decisions not bound by immutable personal prejudices and pre-conceived notions ; and
• Avoid surrounding yourself with “yes-men” and those who fear expressing independent thought.

Being humble is not a weakness of character.  It is a strength that will allow us to succeed.  As a corporate leader, we must have confidence in our individual and the team’ s collective ability to qualitatively assess and quantitatively analyze a situation and be prepared to make recommendations or take action. We must avoid being “cocky” or condescending in our attitudes to others. Always be cautious when arriving at the “obvious” answer. That answer may be clouded by personal prejudices and some self-validating tendencies that live within all of us. Be willing to acknowledge shortcomings in less-than-successful tactics and strategies and embrace the need for change.  As the old saying goes “a sign of insanity is doing the same thing over and over again and getting the same unsatisfactory result”.   To be humble and confident, we must be (1) open to the opinions of others; (2) willing to openly discuss and evaluate the underlying rationale of others’ opinions; and (3) incorporate that which may have been incongruous ideas into our strategies and actions after vetting them thoroughly.  Be open to supportable opinions throughout the hierarchy of the organization from the C-Suite to the loading dock.  The success and failure of both Circuit City and Best Products included repeated opportunities not to learn from the front line troops and evolve the organization.  It is the front line troops who are engaged with the customers, vendors, and business processes on a daily basis and are working to make operations more effective and efficient.  Learn from them.

A good leader must exude confidence, openness, respect, and intelligence.  Good leaders know their boundaries and respect others’ boundaries.  The inability to fulfill these requirements is a problem for a leader and the organization. When taken to an extreme, I believe that excessive maladaptive behaviors are symptoms of a degree of some personality disorder that impairs the social and occupational functioning of the individual (and the organization).  As an example, I have noticed behaviors of unrepentant Arrogance and unapproachable Excessive Confidence exhibited by some leaders and endemic in certain organizations.  While not a trained psychologist, I believe these behaviors are an indication of certain unhealthy personality traits that are disruptive and harmful to a company.  

I have spoken with therapists and organizational behaviorists who believe that narcissistic personality disorder symptoms may be manifested as unrepentant Arrogance and unapproachable Excessive Confidence. The National Institute of Health (NIH) provides the following definition:

“Narcissistic personality disorder is a condition in which people have an excessive sense of self-importance, an extreme preoccupation with themselves, and lack of empathy for others.”

The NIH also outlined symptoms that included but were not limited to:

• React to criticism with rage, shame, or humiliation
• Take advantage of other people to achieve his or her own goals
• Have excessive feelings of self-importance and obsessive self-interest
• Exaggerate achievements and talents
• Pursue mainly selfish goals
• Disregard the feelings of others, and have little ability to feel empathy

Ever met or dealt with anyone like this?  While it is not appropriate for the amateur to judge whether someone or some organization is potentially maladjusted, it is important to ask why is there is lack of humility and guarded confidence in an organization or leadership.  Is there an indication of some of these traits?  If so, one has to recognize that dealing with such an organization will be challenging.

A self-absorbed management governed by the traits outlined above will be destructive to the well-being of the organization. The remedy to dealing with a dysfunctional leader or organization is difficult. Some avoid, some engage, and others seek counsel.  If we see some traits in ourselves, accept that we are fallible but still respected and capable of intellectual and spiritual growth. Lower the defense mechanisms, honestly assess ourselves, and act as we would want others to act towards us.  It is okay to be humble.

Lesson #1 learned is:

1. Accept that each of us has strengths and weaknesses in character and intellect as leaders.  Introspection led by reading and contemplation can be a healthy exercise.
2. Objectively and actively listen to your peers and subordinates. Open yourself up to dialogue on sacred issues. 
3. Surround yourself with smart people who will complement your thought process with independent thought.  Avoid the “yes-men”. They are accomplished at compliments.
4. Drop your fear of being wrong, no one is perfect on this earth.
5. Acknowledge when things are not working out. Know when changes are needed.
6. Engage your team at all levels.  Being the most highly paid does not mean you are the smartest person in the room.
7. If you encounter an organization or leadership exhibiting possible traits of a narcissistic personality disorder, seek help in dealing with what can be a resistant and entrenched culture of adversity.

Finally, don’t become a footnote in a book on the graveyard of once good or great companies that are now gone.

R. David Garlock Director, Restructuring & Litigation Support

Contact Dave Garlock Dgarlock@fahrenheitfinance.com

David has more than 30 years of professional experience as a financial executive in corporate finance & accounting and as a restructuring and turnaround advisor. Since 1998, Dave has worked as an interim CFO and financial advisor to medium size businesses as well as distressed or bankrupt companies and liquidating trusts in the healthcare, manufacturing, and retail industries.  He has performed litigation support services and has provided bankruptcy case management services involving Bankruptcy Courts in New York, Texas, Delaware and Virginia over the last 8 years

The content of this article expresses my understanding of the Habits of Mind and does not necessarily reflect Alan’s intent or meaning in the writing of the book.  Form your own opinion by reading the book.

Bibliography:

Wurtzel, A. L. (2012). Good to Great to Gone, the 60 Year Rise and Fall of Circuit City. New York, New York: Diversion Books.

National Institute of Health. A.D.A.M. Medical Encyclopedia. 2012