Kaikaku - at its worst: How greedy shareholders and incompetent managers can ruin a company

By Robert F. Carter

This book reveals in no uncertain terms how a sea of radical changes (kaikaku) initiated by a reckless CEO, untrammelled by a gross negligent advisory board and executed by an utterly incompetent management team can make a company hit the skids with lightning speed. More than 30 real-life examples spell out the sheer magnitude of harm bad managers can cause and how disaster can be prevented with a bit of humility and a dash of common sense. - There is little hope the people in charge of ChOps Ltd. overcome the Mandela effect when reading this book. But if they do it will be a comeuppance they utterly deserve.

• Language: English
• Publisher: tredition
• Release date: May 5, 2022
• ISBN: 9783347583740

Robert F. Carter

Robert F. Carter has a college degree from Zurich University in economics, business administration and industrial psychology. After almost a quarter of a century as general manager of a variety of industrial production companies in Switzerland, Germany, Hungary, Malaysia, Vietnam and Mexico, he set up shop as a freelance business consultant and one-to-one executive coach when he turned 50. Robert met Marianna 30 years ago (parallels to Robin Hood and Lady Marian are coincidental but accurate). Soon thereafter marriage was proposed and accepted. They are both proud of their two sons, Daniel and Benjamin. Robert’s company, Coaching for ReThink GmbH, registered in Roggwil, Switzerland, aims to live up to its name by inducing, rekindling and encouraging new thought processes in its clients. At Coaching for ReThink we do not believe in the old adage that ‘a rolling stone gathers no moss’, but instead believe that ‘if you rest, you rust’. Henry Ford said, ‘Thinking is the hardest work there is, which is probably the reason why so few engage in it’; having validated this through experience, here is what Coaching for ReThink stands for: Coaching for ReThink’s credo: ‘We believe that nobody can be held responsible for the gender, country or colour of skin they were born into. We believe instead that everyone can be held responsible for the beliefs they nurture.’ Coaching for ReThink’s vision: ‘We want people striving to simplify processes to achieve Flow©.’ Coaching for ReThink’s mission: ‘Our mission is to steadily progress towards our vision – an undertaking akin to the intersecting of parallel lines! But then: the journey is the reward.’’

Book preview

Foreword

The stories in the following pages are based on real-life events in different companies operating in a multitude of industries and a variety of countries. Some liberties had to be taken to shelter the identities of the protagonists and antagonists in the stories. While the protagonists might have liked to get some free advertising for their skills, the antagonists would have slapped me with (based on their suffering from the Mandela effect) individual and class action libel suits. – Having said this, they can still come forward and reveal their identities out of their own volition because hubris, as you will learn, makes blind and deaf but, unfortunately for the sufferer and the people around him, not mute. – Besides, not all antagonists acted with intent to destroy the company they worked for but just happened to live up to what Karl Kraus said: ‘The opposite of good is not bad but well meant’. This tallies with the English proverb, ‘The road to hell is paved with good intentions’.

To further camouflage identities and make the stories easier to read by avoiding terms such as ‘at company A, it was customary to…’ and ‘at company B, they really thought that…’, I invented a company in which all the worst kaikaku decisions were made, Chaotic Operations Limited (ChOps Ltd.), because this name not only conveys its very nature but also its modus operandi.

On the one hand, the goings-on at ChOps Ltd. needed a modicum of dramatization to give the stories more panache. On the other hand, the descriptions of the effects of some decisions and actions taken by the antagonists had to be alleviated because I winced and felt physical pain when, once put into words, they revealed themselves in their sheer magnitude of stupidity – or to phrase it in more diplomatic parlance, in their sheer irrationality.

The subtitle of this book, ‘[Kaikaku] at its worst: How greedy shareholders and incompetent managers can ruin a company’, requires some explanation.

The first part, ‘[Kaikaku] at its worst’, signals:

1) Tragic events → The worst cannot be a harbinger of success, glory and joy;

2) Doom → The worst always means unhappiness.

The second part, ‘greedy shareholders’, triggers at least two rather malicious emotions:

1) ,Envy → The assumption that shareholders are rich is not farfetched; therefore, the reader will get a sneaking suspicion that they are poorer than the Scrooge-like shareholders;

2) Schadenfreude → ‘Greedy’ signals that ‘they have got a lot but want more’ and, God willing, lost everything.

The third part, ‘incompetent managers’, awakens:

1) The backseat drivers → They have not and will not run anything but know for sure how anything should be run;

2) The malevolent → ‘How have the mighty fallen – of course, managers are incompetent! And serves them right that they have been found out’;

3) The fighters for a classless society → Socialists, communists and anarchists who view everyone from an elated position of authority with suspicion.

The fourth part, ‘ruin a company’, is readily comprehensible.

Now, dear reader, you know what I think of you – no, please, it is just a (rather bad) joke! With the title of this book, I triggered in you what advertisements, mass-marketing and mass media have been conditioning you to respond to for decades: sensationalism. – Which is defined as ‘(especially in journalism) the presentation of stories in a way that is intended to provoke public interest or excitement, at the expense of accuracy’ – Except for the last bit it holds true for this book.

Please compare the current title to: ‘A mid-sized company’s history: A treatise from an academic viewpoint’, which also triggers emotions and second-guesses, such as:

1) Boredom → Can anything be duller and more boring than history lessons at school?

2) Verbosity → A treatise deals methodically and formal-ly with a subject; thus, neither formality nor methods can be expressed in a few, concise sentences, right?

3) Loftiness → ‘Academic’ has the tendency to indicate something highbrow, something that is above most people’s heads, hasn’t it?

I hope after this juxtaposition, I am forgiven for choosing the title of this book as I did. Am I?

That said, this book’s main topic is kaikaku (Japanese for ‘radical change’), which happens to be a double-edged:

1) sword → It brings mayhem and havoc to anything if brandished deliberately and/or mindlessly; and

2) lancet (aka, scalpel) → It brings healing and happiness if used proficiently and in a masterly way.

Therefore, it all depends on your intentions and dexterity. If you have the best of intentions and have acquired enough skills during years of practice, kaikaku will yield the desired results. However, if you have the best of intentions but lack the skills to use it, it brings doom and disaster.

Onlookers (that is, everyone who cannot read your mind) can only see the results of the way you apply kaikaku. Therefore, if you do have the best of intentions, you have to:

1) Communicate your intentions and ask for feedback so you can make sure everyone perceives you as a healer and not as a demolisher;

2) Use leadership concepts – like the one used widely in the Swiss Army, ‘command, check, correct’ (3C). In spite of its straightforwardness, it did not make it into the textbooks of business administration because all three words start with a ‘K’ in German…; and

3) Heed Winston Churchill’s advice: ‘However beautiful a strategy, you should occasionally look at the results.’

Had the antagonists been mindful of at least one of the above three suggestions, a lot of suffering and financial harm could have been prevented, and ChOps Ltd. would not have gone pear-shaped.

For easier readability, the male gender is used throughout the book – besides, all the companies aggregated to ChOps Ltd. were entirely male-dominated. Thus, introducing female managers just to please the gender-conscious would be a gross diversion from the truth and do female managers a disservice. In my illustrious career, I have never encountered a company in shambles where women were in charge. Therefore, the following up-to-the-point observation is still valid:

‘Male-dominated companies should realise that the principles of an organisation that suit a baboon troop (highest testosterone level in the male leader of a troop) might not be the most efficient ones for running a complex corporation.’ – Anonymous

This tallies with the Lehman Sisters Hypothesis: because women are more risk averse than men, female-led companies will hardly ever go bankrupt.

This is an excerpt from the glossary/sources section, which I highly advise you to browse because it clarifies topics and expressions used throughout the book.

Chapter 1

‘Wealth never survives three generations.’

Chinese proverb

‘Rice paddies to rice paddies in three generations.’

Japanese proverb

‘From shirtsleeves to shirtsleeves in three generations.’

North American proverb

‘Clogs to clogs in only three generations.’ – English proverb

‘From stables to stars to stables.’ – Italian proverb

Regardless of how you phrase it, only 30% of affluent families are able to transfer wealth to the second generation and only 10% to the third. Worldwide, there is a 70% failure rate in wealth transitions, regardless of country, tax laws or economic cycle.

This leads us to ask: what events cause such an epidemic, chipping away at family wealth?

• 60% are caused by a breakdown in communication and trust within the family unit (lack of reliability, sincerity, competence and communication);

• 25% are caused by inadequately prepared heirs;

• 12% are caused by other factors, such as taxes or legal issues;

• 3% are caused by failures of financial professionals to interpret taxation, governance and wealth-preservation issues correctly.

The third-generation curse hit ChOps Ltd., too. My experience shows that if a company survives the third generation – even if by the proverbial skin of its teeth – the fourth generation is again keen to make things happen and work in and around the company they were privileged enough to be handed, either by the previous generation or a generous liquidator.

The family members of the third generation appear to have stronger egos than their ancestors, especially concerning cavilling about trivialities to the effect of agreeing to disagree after lengthy, senseless discussions. Once ego takes over from common sense, however, it is game over! Egomania had such an adverse effect on the company that I voiced the following remarks at shareholders’ meetings of ChOps Ltd.:

‘As individuals, you sport IQs well over 100. Once you convene in a shareholders’ meeting, your IQs drop to two digits, star-ting with – best-case scenario – a 7!’ – What made me lose my composure was that individually, they all agreed on the best way forward, but once they had to agree in the assembly, they refused to do so. This tallies with what Mrs Banks sang about men in the 1964 Disney film, ‘Mary Poppins’: ‘Though we adore men individually, we agree that as a group, they’re rather stupid’.

‘Sir, using I.O.U.s like confetti doesn’t seem to be the best way to support subsidiaries financially’. The chairman signed hard comfort letters and irrevocable payment orders by the dozens for loan sharks who were willing to finance underperforming subsidiaries of ChOps Ltd. The loan sharks were actually well-known banks providing mezzanine capital. Once you added up all the fees (handling, deployment and whatnot), ChOps Ltd. had to fork out between a 15% and 20% p.a. interest rate on these loans. Less respectful individuals than I might dub such a chairman ‘one sandwich short of a picnic’…

‘Promethean!’ – My acid remark after the chairman let us in on how to achieve a higher profit margin: by increasing retail prices and decreasing input prices. His quizzical look made me add, ‘I simply meant to comment on your ground-breaking idea, sir’.

‘Nepotism: We promote family values here almost as often as we promote family members’ – [Larry Kersten] – I whispered to the general manager of one of ChOps Ltd.’s subsidiaries when we learned about the promotion of a third cousin of the founder’s grandniece.

Becoming morons, accepting usurious interest rates and stating facts that are as plain as a pikestaff are all clear signs of various degrees of irrationality, which, according to the Cambridge Dictionary, is ‘The fact of not using reason or clear thinking’. ‘Is there a cure against irrationality?’, you might wonder. Well, I doubt it. If there were a remedy against irrationality, the parents of ‘X Æ A-12’ might have taken it – or might have been advised to take it – before they named their child in such an eccentric way. However, such a cure would never lack demand: politicians, mainstream media journalists and their experts would have to be boosted at least once a month against irrationality…

In Chapter 2, we take a look at the options the shareholders had when setting up ChOps Ltd. regarding voting rights within the shareholders’ assembly and the code of conduct, which is considered the foundation of good governance.

In Chapter 3, we examine the impact of the C-level managers, members of the advisory board and members of the workers’ council on ChOps Ltd.’s downfall. Real-life examples describe what was done wrong, and after each example, an explanation is provided as to how such disastrous conduct could have been prevented.

In Chapter 4, we take a look at the life cycle of a company from start-up to succession and point out what should be done right from the beginning to prevent a start-up from turning into a ChOps Ltd. Every founder has to hand over his enterprise to a successor, even if it is, sadly, to a liquidator. We take a look at the options and how to go about this task for the best results.

In the Analysis and Conclusion section, we outline the root causes of doom and gloom at ChOps Ltd.

Chapter 2

A crisis rarely comes out of the blue but results from negligence: a lack of vigilance, focus and discipline; and a hefty dose of irrationality. Almost all crises can be prevented by the daily practice of hansei (Japanese for ‘self-reflection’) and kaizen (Japanese for literally ‘drive out the bad’ but more usually translated into ‘continuous improvement’). A do-nothing policy and/or constant ego-driven bickering about the best way forward end in dysfunctional processes, dissatisfied stakeholders (shareholders, employees, customers, suppliers, etc.) and, without kaikaku-at-its-best countermeasures in insolvency or bankruptcy.

Add shareholders’ greed and managers’ incompetence to the above, and the complete annihilation of the company can only be stopped by handing it over to new shareholders, who put capable managers in charge of their freshly acquired enterprise.

A side note for all those who read my first book:

Yes, it would have been possible to keep ChOps Ltd. in the ownership of the irrational and cursed third generation of shareholders. The means to this end would have required ‘Kaikaku at its very best – How mature stakeholders agree to radical changes to save a company’ – I hope I find enough evidence for such conduct in the SMEs I advise to write such a book…

(Almost) none of the kaikaku ups in my first book happened in companies led or owned by third-generation shareholders. One exception proves the rule, though: at this particular company, the third-generation partners had decided to hand over the responsibilities of management to the next generation without much ado. That is, the old managing partners faded out, and their sons gradually assumed responsibility for the everyday business and started to implement the mutually agreed mid- and long-term strategy for the company. They no longer cared, which kept power struggles to a minimum. ‘Praise the Lord for their ignorance!’, cheered the fourth generation…

The irrationality of the cursed third generation can thwart any attempt of even one shareholder acting as the saviour of the company. The incompetence of the current management being a reason for doom and gloom in itself results in only one feasible approach: only a chief restructuring officer (CRO) can act as a knight in shining armour, especially one who marches to the beat of his own drum because with his out-of-the-ordinary methods, he may confuse the decision makers for long enough to put things right at the company.

The CRO is unquestionably the linchpin if he

1) Unites all stakeholders;

2) Initiates and implements the right kaikakus;

3) Stays at least until the point of no return;

4) Is de jure and de facto the CRO.

Then, and only then, it is feasible to salvage ChOps Ltd. for generations of shareholders to come…

Of the above, only 3) and 4) require some explanation. The point of no return must be defined as the time and date when the liquidation of the remaining assets of ChOps Ltd. is inevitable. Until this date and time arrives, everything has to be done to save the company for the current shareholders by sacking incompetent managers and deadweight employees (who hang about the company’s imagined neck like an albatross), radically reducing muda/muri/mura, and bringing about positive kaikakus. The CRO must irrefutably be put in charge as head honcho of the mission: ‘Save ChOps Ltd!’. Any behind-the-scenes power games, arm-twisting and butt-kicking, are harmful to the cause. They are only means in themselves for egomaniacs and bandwagoners. A CRO is an interim manager; thus, people in charge will have had enough time to meet