In light of Bank of America’s recent woes, this piece is part of an On Leadership roundtable exploring the root causes of the corporate ‘urge to merge’.
The urge to be bigger, broader, faster may sound like a description for an NFL power play. It also sounds a lot like the average CEO’s business philosophy.
Just look at the recent experience of Bank of America, which announced layoffs for 30,000 employees on top of thousands already laid off in the previous few years. It was the brass ring of former CEO Ken Lewis to make Bank of America the dominant player in financial services. But as happens so often, the growth went a step too far – and now CEO Brian Moynihan’s job, in essence, is to scale back and clean up the mess.
CEOs are under tremendous pressure to generate earnings. Sit in on any analyst call and you’ll hear a number of questions put to the CEO about what he or she is doing to grow the business now. Wise CEOs, and I am of the opinion that most are, know that the best growth is organic; it comes from nurturing each market segment to deliver proper returns as justified by proper investments. Still, that does not always satisfy the Street, which relishes quick hits and easy wins.
And so it’s no wonder that some CEOs start to look like Gollum from The Lord of the Rings, blinded by golden opportunities too good to pass up. This is the spirit that fuels mergers and acquisitions. You can double the size of your business with the stroke of a pen, rather than through many years of organic growth.
The urge to grow is also inherent in the CEO business psyche. Few rise to the top by patiently waiting on the sidelines. Most CEOs are people of ambition, driven by the need to succeed. And when they finally do, they then channel that personal drive into corporate ambition. Hence the desire to enlarge the company footprint.
Legacy, too, plays a critical role in a CEO’s quest for growth. We all want to be remembered – and not as the guy who maintained the status quo. Like the pharaohs of ancient Egypt, today’s corporate leaders want to build a bigger pyramid than their predecessors. Ironically, also like pharaohs, in doing so they may end up digging themselves and their businesses a grave.
It’s now been three years since the height of financial meltdown, and this hindsight makes it easy to criticize. Bank of America’s 2008 purchase of Countrywide Financial, which had tens of billions tied up in home loans that would soon become insolvent, looks absolutely ludicrous, if not worse. As Rebel Cole, professor and former Federal Reserve economist told NPR, “Ken Lewis wanted to show those guys on Wall Street that this North Carolina bank could be the biggest, the best and the baddest bank in the country.”
But with the heady myopia of pre-default days, considerations of catastrophe did not seem credible. Those who wanted to grow threw caution (as well as fiscal prudence) to the wind and pursued whatever course they could. No doubt, growth is imperative to business. What we’ve been seeing, though, smacks something of Napoleon’s invasion of Russia.
It was not simply the snow that did Napoleon in, it was his own ego. Prior to entering Russia, the emperor seemed invincible. Hubris fueled his quest, but to what aim? Even after taking Moscow, the czar still ruled Russia and Napoleon was forced to retreat to Paris to thwart a coup, abandoning his troops in the process.
Likewise the question every CEO must ask is this: What is our purpose? Grow, yes, but at what cost? I recall the story of a company whose executive team became infatuated with the idea of attaining a 50-percent market share. They never achieved it, but striving for it distracted the company from growing in a reasonable way. They wasted time, resources and manpower in pursuit of an impractical goal.
So what are CEOs to do? Frame personal ambition less around what is good for self and more around what is good for the business. And the irony: in doing so, CEOs will still get to write that great legacy. They’ll long be seen as good stewards who left the business in better shape than when they arrived.
John Baldoni is the author of eight books, including Lead Your Boss: The Subtle Art of Managing Up.