The Illusion of Invincibility. Paul Williams
and Gas
The Top Ten in the Fortune 500 list for 2018
| Ranking | Company | Country | Turnover-2017 (US$ billion) | Sector |
| 1. | Walmart | USA | 500,343 | Retail |
| 2. | State Grid | China | 348,903 | Energy |
| 3. | Sinopec Group | China | 326,953 | Energy |
| 4. | China National Petroleum | China | 326,008 | Energy |
| 5. | Royal Dutch Shell | Netherlands | 311,870 | Energy |
| 6. | Toyota Motor | Japan | 265,172 | Motor Vehicles & Parts |
| 7. | Volkswagen | Germany | 260,028 | Motor Vehicles & Parts |
| 8. | BP | UK | 244,582 | Energy |
| 9. | Exxon Mobil | USA | 244,363 | Energy |
| 10. | Berkshire Hathaway | USA | 242,137 | Financials |
The list reflects the tectonic shifts of the global economy. In 1990, the United States is leading the list with six companies, followed by Japan with two. By 2017, however, there are only three American companies and one Japanese, but three from the People’s Republic of China are in second, third, and fourth place. Well-known names such as IBM (the fifth-largest company in the world in 1990; ranked 92 in 2017) or General Electric have dropped out of the top ten completely. The 1990 leader, General Motors, ranked forty-first in 2017. The oil and gas giants now dominate the list more than ever, taking six of the top ten places. Berkshire Hathaway is the first financials company to make it into the top ten.
For a long time, General Electric (GE) served as a role model for generations of business managers, ranking year after year in the top ten of the Forbes 500. How was it possible that this icon of American industry could so suddenly and comprehensively collapse? After a period of continuous decline in share price, on June 26, 2018, GE was removed from the Dow Jones Index. This was a bitter moment indeed, as GE was one of the original members of the Dow when it was launched in 1896 and had been included in the index continuously since 1907. A typical selection of those elements which guarantee decline were to be found at GE: a disintegrating corporate culture, gigantomania, blatant financial trickery, and balance sheet manipulation. In just one year, over $125 billion of the company’s market capitalization was wiped out.
One of the maxims of the business world is “the only thing that is certain is uncertainty,” with past performance being no guarantee of future performance. Unfortunately, this almost always seems to be forgotten during prosperous times, leading to some reckless decisions. In 2000, the German car manufacturer Daimler made a brief appearance in the top ten, thanks to its merger with Chrysler. CEO Jürgen Schrempp described the merger as “a marriage made in heaven.” Schrempp’s ambitious plan was the creation of a “global corporation,” ignoring all evidence of the problems which arise from mergers and acquisitions, and the skepticism of his own dealers. Unfortunately, the dealers were right: In 2009, the heavenly union ended in a forty-billion-dollar divorce. The DaimlerChrysler saga is a perfect example of a senior executive’s unchecked egomania and a failed merger strategy. We will go into greater detail about these traps and how difficult it can be to avoid them in Chapter 8 (“Ego Beats Reality”). After all, no confident and tenacious manager who has made it to the top of the greased pole is immune from an inflated ego. So, the challenge is this: How can you stay on the right side of the fine dividing line between ambition and egomania, or between visionary drive and megalomania? How can you protect yourself from your own “Indiana Jones moment”?
Wait a minute. You’re probably thinking: What’s wrong with following in the heroic footsteps of the thrill-seeking movie character? Well, to be blunt, the archaeologist Indiana Jones is anything but a role model. Yes, at the end of each of his adventures he has found the prized treasures, but only after leaving behind him a trail of dust and destruction, including ruined temples and monuments. Just like the character of Dr. Jones, played by Harrison Ford, many managers tend to confuse self-interest with service for the greater good, often doing their businesses an enormous disservice as a result; since we’ve had some personal, front-row experience with this, in the final chapter, we’ll tell you about our own Indiana Jones moments. Before that, however, in Chapter 6, we will take a closer look at the other reasons why big company mergers, like that of Daimler and Chrysler, fail so spectacularly, and explore what modern business managers might learn from the Incas and their well-crafted approach to integration.
But let’s get back to the Fortune 500. The car industry provides many examples of corporate failure, and any analysis needs to address the question of corporate values. Time will tell how Volkswagen, ranked number 7 in the Fortune 500 in 2018, will fare in the light of the “Dieselgate” scandal. In the US, revenue was down tremendously soon after the irregularities were uncovered, with VW having advertised its diesel cars on American television as being super clean. In one ad, an older lady holds a pure and pristine white cloth behind a car exhaust pipe with the engine running, and the cloth remains whiter than white. Those who so blatantly blur the lines of corporate values will pay—or are paying—the price (see Chapter 4). Once described by one of Europe’s leading current affairs magazines, Der Spiegel, as “North Korea without the boot camps,” the corporate leadership culture at VW is a good example of why company values have to be much more than just slogans for use at town hall meetings and offsite workshops. At VW, employees trembled with fear in front of senior management, as they could lose their jobs if they didn’t meet targets and stay within budget. Consequently, they covered up and fiddled problems, and now the business is faced with much higher costs arising from fraud. Even after the manipulated software was first exposed, VW’s inconsistent relationship with company values continued unabated. In the spring of 2016, while blue- and white-collar employees were in fear of losing their jobs and taking pay cuts, the top management pushed through seven-figure bonus payments for themselves, still convinced that they had done everything “right.” Since then, it has become increasingly clear that management performance needs to be reevaluated, and calls are getting louder for these performance bonuses to be paid back. And rightly so! By April 2019, the diesel scandal had already cost the company twenty-nine billion euros; international investor groups were lining up with damage claims, and, most recently, another 5.4 billion euros in accruals had to be put aside by the CFO. It remains to be seen whether that will be enough. Meanwhile, over seventy criminal cases against individual managers have been filed in the United States and Europe. In fact, ex-VW CEO Winterkorn and nine other VW and Audi managers no longer dare to travel to the US for fear of being arrested on the spot.
Of course, many other factors have an impact on business success, and we will take a closer look at them in the course of this book. At what point does an emotionally charged business vision start to be counterproductive (Chapter 1)? How were the Incas able to succeed over many decades in entrusting leadership to the most talented, an area where many businesses fail (Chapter 2)? What defines credible leadership (Chapter 3)? How can businesses today avoid the kinds of destructive power struggles that brought the Inca Empire to its knees? And, when faced with other people’s self-interest and biases, how can managers remain level-headed and make objective decisions? A careful analysis of Inca history can provide answers to these questions. For five hundred years, the way the Incas were viewed was heavily influenced by their insatiable conquerors and Catholic missionaries. The newcomers justified their brutality by denouncing the Incas as a “primitive” culture. Bearing this in mind, it’s well worth asking yourself: “Who’s telling me what, and why?” (Chapter 7, “Sound Judgment.”)