Tuesday, August 01, 2006

The Real Rationale for a (Ridiculous) Ford-GM Merger?

In my last blog (July 25), I described the stupidity of the trial-balloon idea being floated by so-called "brilliant thinkers": mainly, that GM can overcome its catastrophic problems by merging with a sick Ford. Read that blog; it’ll start the process of curing you of the idea that mega-mergers are the answers to life’s persistent problems.

One reader’s response to my blog was so insightful that I wanted to post it here, because it’s something that I’d overlooked. Here’s what he wrote me:

“The purpose of the Ford-GM merger would allow the C-Suite (my note: that’s the executive suite) to stay employed for a few years longer. It’s the job security of bringing additional chaos with the smokescreen of fixing the company. By upselling the 'potential' benefits to shareholders and analysts they can shift focus from the actual problems. A lot of minor inefficiencies can be spotted and fixed post merger to make the executives look like heroes; they make for a lot of bullet points on the annual report. This type of solution is the most likely for executives unwilling or unable to effect positive growth and true efficiencies.”

Well said! As I wrote back to this discerning reader, the ultimate tragedy of this approach towards “fixing” things is that once the executives look like heroes, they’ll exit the stage and retire with millions, leaving the inevitable huge mess for someone else to inherit.

In my upcoming book Break From the Pack, chapter 2 is called “How to Lose: Ten Compulsions Guaranteed to Keep You Mired in the Pack”. In the spirit of my reader’s comments above, let me draw a few sentences from “Compulsion #10: The Compulsion to Do Anything as Long as You’re Doing Something”:

(Many leaders respond to big, pressing problems) with manic bursts of action—any action, regardless of whether it’s coherent, purposeful, disciplined, or inspiring…..Such actions can be acquisitions, divestitures, “back-to-basics” initiatives, restructuring, downsizing, or fresh ad campaigns. It doesn’t matter whether there is any strategic logic, due diligence, or deep execution, as long as “actions” happen….Short term spikes in performance sometimes occur, but they’re not sustainable. Eventually, the chaos catches up.

Acquisitions can sometimes be of great value in building a firm’s competitive strength, but not when leaders initiate them primarily out of myopia, desperation or self-aggrandizement.


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