CEO for 20 minutes

How would you like to be CEO for 20 minutes ? No this is not one of those employee motivation exercises, nor is it a joke. This is all too real.  That's precisely what happened to Bill Johnson the CEO designate of Duke Energy.

All this arose from a merger between Duke and Progress, two giant utility companies in the US. It is now the largest electric utility in the US. As is typical in such merger of giants, the CEO of Duke was to become the Chairman of the combined entity and the CEO of Progress, Bill Johnson, was to become the CEO of the combined entity. Regulatory and shareholder permissions were sought , and received. All very good. On 27th June, Bill Johnson signed his new employment contract and  that was that.

The merger was consummated at 4.00 PM on Monday 2nd July. Immediately thereafter the new Board met and sacked Bill Johnson. At 4.20 PM Johnson resigned - he resigned rather than refusing to do so, as he was getting a $10m settlement that way. CEO for 20 minutes.

This is not a tin pot company, nor is the Board a bunch of jokers (although you have to rethink that now). Both the companies are giants in their own right and the combined entity is a behemoth. And yet, did they seriously believe that they would get away with this sort of behaviour? Did they expect the regulators and the shareholders to keep quiet. Even a moron can see that this is probably the worst move that you can make.

Mergers and acquisitions are notoriously difficult to implement. More go wrong than right. But if you start off like this, what chance do you have of any success ?

The future is all too predictable. The Board will defend for 3 days that all was right. Public and regulatory outcry will build up. Then the Chairman will resign. As will a few more Board members, if not all. A new CEO will be appointed. More turmoil. And the acquisition will steadily go downhill. Two years from now, Progress will be divested at one tenth the acquisition value.

It boggles the mind how corporations can monkey around like this. They seem to be their own worst enemies.

PS. Since all this drama is happening in Gils's current hometown,  perhaps, the esteemed blogger might pen a first hand account in the comments section :)

Corporate Japan at its worst

In the good old days when I was in business school, Japan could do no wrong. A million books were written on the Japanese style of management. America was bust, Japan was everything. Case after case taught at business school was on how gloriously managed Japanese businesses were. At that time the two words we were thoroughly sick of was Japan and Walmart ! Time has since proved that there is a fair bit to admire about Japanese management, but a lot that is thoroughly rotten.

A great example is what happened at Olympus last week. This is the company that makes cameras.They just fired Michael Woodford, their CEO, and a 30 year company veteran, two weeks after elevating him. They were brave enough to appoint a non Japanese as their CEO, one of a handful of Japanese companies to do so and foolish enough to sack him immediately. His crime - he didn't listen to the Chairman Kikukawa san and started probing into the financial skulduggery that seems to have gone on.

The skulduggery relates to the acquisition of Gyrus, made in 2008. The acquisition was for $2 bn. Olympus then made payments for advisory fees of $687 m to two virtually unknown firms. Nobody can trace who the owners of these two companies are. One of them, registered in the Cayman islands has since disappeared off the registry 3 months after receiving the last payment from Olympus. These payments were not disclosed to shareholders - instead they were hidden in goodwill by adding to the acquisition price. Now, who on earth pays advisers fees of $687 million for a $2 bn acquisition ?? Not even Wall Street is that greedy.

KPMG, their auditors disagreed with all this accounting wizardy and were promptly sacked for their endeavours.

Woodford started to enquire into this and was told to shut up and look elsewhere. His crime was that he did not listen.

Woodford was summoned to a Board meeting were he was told to zip his mouth and not speak. The solemn directors then proceeded to fire him. The function of the board, alas all too often in Japan, is to bow one inch lower than the Chairman. So much for corporate governance.

The rigidity of hierarchy in Japanese corporate life survives to this day, Grovel and obey without question. I am still amazed how they managed innovation with that culture. I am sometimes inclined to credit some divine providence for all the wonderful innovation in product and quality systems that came out of Japan. How else can you explain  that coming out of a Stalinist corporate culture.

The only lot who are thoroughly unimpressed by all this is the Japanese investor. He has cheerily driven down Olympus' share price by 24%. Kikukawa san and his deputy Mori san may still have to fall on their sword soon.

The curious case of Ben & Jerry's

Do you like Ben & Jerry's ice cream? Most probably a resounding yes.  But this post is not about its ice cream. Its about what it has done on Tuesday.

What it did on Tuesday was to go to New York's Zuccotti Park where the Occupy Wall Street protesters are camped and dole out free ice cream to all of them. Nothing spectacular about that, except that it went on to publicly declare its support for the protesters. It also published a statement from its Board of Directors that the company has the deepest admiration for the protesters and is standing with them. You can read what the Board said here.

Ben & Jerry's has long been a left leaning company promoting a variety of causes. Its founders Ben Cohen and Jerry Greenfield started the company with a clear social and sometimes political agenda. So should this latest action be surprising. Yes, because, Ben & Jerry's is no longer an independent company. It's a subsidiary of Unilever, a global multinational company, perhaps the very sort that the Occupy Wall Street protesters are agitated against (that is, if somebody can decipher what exactly they are protesting about).

Was Unilever ambushed by the act of Ben & Jerry's ? Tough to believe so - for the Board of Ben & Jerry's has Unilever representatives, including an ex Director of Unilever itself. Unilever has issued a statement that it is neutral to social campaigns and has no comment to make, but that is a blithe remark considering that  its subsidiary is indeed making a very loud statement.

How far do you let your subsidiary act on its own ? Usually subsidairies are simply legal shells and the parent runs them as one corporate whole, unless there are external shareholders. But Ben & Jerry's is different. Perhaps because of its historical brand image. Perhaps because of covenants agreed with the founders at the time of acquisition to allow the company to have a social agenda. But still, the latest action seems a step too far. I won't be surprised if the upstart is reined in.

What of the protestors ? They are objecting to evil corporations; right ? Do they want the support of one ? Some of them expressed mixed feelings. They said they were uneasy about corporations muscling in on their patch. But they also said, they could not turn down a free ice cream !

Very curious.