Traits for Success

A good way to move up in the corporate world, according to a recent report in the journal of Applied Psychology, is to favor "ingratiation" over "self-promotion" during job interviews. In short, kiss up (by, say, agreeing with a supervisor's opinion even if you don't wholeheartedly agree with them) instead of pushing your own qualifications for the new position.

The truth is, hiring decisions are, according to Logan Allin, a partner at a management consulting firm in New York, "absolutely about networking and politics. I recruit, hire, and promote people every day, and that accounts for about 65-75% of the reason." (2004)

A key difference between big business and entrepreneurial business is the traits that are necessary for success. Small business, like sports, is judged on performance. This is true because small business and sports are relatively simple, and it is not all that hard to judge who is successful and who is not. Sports performance is highly visible, is filled with knowledgeable spectators and constant private and public analysis. Small business is not closely analyzed, but, for those who are interested or willing to make the effort, it is much easier to determine if a local restaurant or dry cleaners is profitable than to analyze Microsoft. While it is true that professional analysts follow and report on big business, they often have conflicts of interest, and, even when they are trying to be objective, they have a poor record for predicting business performance, often changing their analysis after, rather than before, publicly announced changes in business performance.

The difficulty figuring out the performance of large businesses is shown by the lack of success in the investing community; as has been well documented, on average, actively managed mutual funds fail to perform as well as passive index investing. In other words, despite all the time and effort invested by extremely well educated people with advanced degrees, using complex technology and the latest technology, they typically don’t have sustained, long-term success in predicting business performance, or stock prices. Big business, because it is so much more complex and opaque, is, like government, often influenced more by personal politics than by objectively judged performance. One might think that big businesses, especially publicly traded corporations, are judged by the numbers, but, as we discuss elsewhere, there are myriad examples of corporate CEOs making huge incomes with poor performance. The process of becoming a CEO is, as our examples below will illustrate, opaque, and has little to do with past or future performance. People in the corporate world, especially those that have been successful, like to think of the corporate jungle as a meritocracy – but history and the facts simply don’t support this.

If one were to list the sorts of personal traits commonly found among entrepreneurs, things like independent judgment and a desire and willingness to go against the common consensus would rank high. One would find almost exactly the opposite set of traits among those who have reached the summit of large corporations – following the approved path, consensus building, and credentialization are paramount to success in the corporate world. You may be the brightest guy or gal in the world, but if you don’t have an MBA from one of several “top” schools, there is little chance you will be hired by a leading New York investment bank. Formal education, often completely irrelevant to the task at hand, is used as a screening mechanism to create what amounts to a caste system. And in this sense, sports is much like big business rather than small business.

A young man or woman goes to Princeton, works for a couple years as a research analyst at a bank, gets an MBA at Harvard or Stanford, and then, if he does well, goes to work at Goldman Sachs; there is no mystery to this process. The same is true in sports which have a very well defined path to success: you play your sport in high school, then you play your sport at a Division One college, hopefully one with an established tradition of success, and, if you are very successful, you are drafted to the pros. When a high school football star chooses to go to the University of Miami, they do so with full knowledge that that program has sent more players to the pros than any other college football program. If they didn’t know this before, they certainly do after talking with recruiters from Miami. The young football or basketball star evaluates colleges very much the same way that the potential investment banker evaluates MBA programs. Once the young athlete gets to their “educational” institution of choice, they must both perform at a top level. Pro scouts have no interest in anyone but stars, even if they go to Ohio State or Notre Dame. Goldman Sachs, the premier investment banking firm, will only look at students at the leading business schools, and only at the top students at those schools.

The big difference is that whereas the football that is played in college is quite relevant to the football played at the professional level, the same cannot be said of the studies at graduate business school. MBA schools tend to emphasize quantitative analysis, and complex mathematical formulas. Simply to get into a MBA program you must typically have completed calculus. I will guarantee you that of the top corporate managers of the world, few could successfully complete a differential calculus equation, and almost none have any need to. Business is about persuading people; clients, colleagues, bosses, subordinates, and business school is about the rigorous application of sophisticated, often quantitative models, rarely applied in the real world. In some ways, business school is not only not helpful to real business, but teaches certain ideas, like the Efficient Markets doctrine, that is antithetical to real world investing.

Now that most professional leagues like the NFL and the NBA have instituted minimum draft ages, often the only real tactical question for a college star is whether he should go pro after his junior year or wait one more year. Compare this process with entrepreneurial businesses. Bill Gates and Michael Dell both dropped out of college, like many technology entrepreneurs, to start their companies, and became very youthful millionaires, then billionaires. On the other hand, Harland Sanders, better known as Colonel Sanders, also dropped out of school, but did not found Kentucky Fried Chicken, better known as KFC, until he was 62 years old. Although most entrepreneurs tend to be younger, as new ventures tax the optimism and energy of youth, successful companies have been started by those of any age, with hugely varying backgrounds. There is no clear cut path for those wishing to become entrepreneurs, and an academic training in “entrepreneurship”, while available, in never a prerequisite. In fact, of successful entrepreneurs, the vast majority have no formal training in the field of entrepreneurship, and often no formal training in the area of business in which they focus.

In this book, we often focus on media business, because it is media, and the fight for television ratings and market share, that has transformed the sporting world. So let’s take a look at some media businesses and examine what have been the traits that have led to power and success.

We’ll start with international electronics giant Sony, and their recent ventures into the international media world. It was, after all, Sony that invented the Walkman, which drove the growth of CDs, making 8 track tapes, Cassette tapes, and traditional record albums obsolete, and introducing the whole idea, now carried forward by the iPod, of making personalized music portable. And while they started with music, the Compact Disc format ended up revolutionizing movies as well. Sony is one of the world’s largest media conglomerates, and one of the more difficult to understand, in terms of management structure. The company’s main areas are electronics, video games, movies, music, financial services, and semiconductor manufacturing. Based in Tokyo, the company has over 163,000 employees in Japan and around the world. About 75% of the company’s income comes from outside of Japan.

At the height of Japan’s economic successes, in 1989, amidst what turned out to be vastly exaggerated fears that Japan was “buying America”, Sony purchased Columbia Pictures Entertainment, Inc. the Hollywood film studio founded by Harry Cohn in 1919. (Columbia Pictures, TriStar Pictures, etc. The company was renamed Sony Pictures Entertainment in 1991.) Sony paid a huge amount to hire Jon Peters and Peter Gruber to run the studio. Peters was a hairdresser in Hollywood who did Barbara Streisand’s hair, then became her lover, and, with her help, became a movie producer, producing A Star is Born, starring, naturally enough, Streisand. (Streisand is not among his Peters’ four wives.) Here is how the Los Angeles Times described Peters: “a seventh-grade dropout and reform school graduate who began his show-business career as Barbara Streisand’s hairdresser-boyfriend-manager”. But he did have great powers of self-promotion. So Peters slept his way to the top; nothing unusual in Hollywood, but also not a particularly redeeming qualification. He was known for his off-beat management: In an unsuccessful attempt to remake one of the Superman movies, Peters was said to insist that Superman not fly, and not wear his iconic costume, among other “innovations.”

Peters formed a partnership with Peter Gruber, who had a more conventional film making background, and the two were hired, for multimillion dollar salaries plus equity, to run Columbia when Sony bought it for $3.4 billion. Guber, the CEO, was asked to leave Sony in 1995 after Sony reported a $600 million loss and wrote-off a further $4.8 billion resulting from the reduction in value incurred under Guber and Peters. At the time, this was the greatest single write-off in corporate history and marked the end of an unprecedented string of losses and failures under Guber's management at Sony Pictures. (A write off that would be far eclipsed when Jerry Levin, a corporate infighter who yearned to be an entrepreneur, made one of the worst decisions in business history when Time Warner merged with AOL, as profiled below).

This brief but costly period of Sony Pictures history was chronicled in a best-selling book by Nancy Griffin entitled "Hit and Run: How Jon Peters and Peter Guber Took Sony for a Ride in Hollywood. The book was described in one review as recounting “the rise of Peters and Guber, who together earned fortunes by schmoozing their way to the top, seducing gullible investors, and shoving aside the filmmakers who actually turned out successful films like "Rain Man" and "Batman." Their major accomplishment seemed to be remodeling the offices and production studios, at a cost of over $100 million. In summary, Peters and Gruber were generally hugely unqualified, terribly unsuccessful, yet not only attained the top rank of their professions, but made fortunes as their businesses failed. As we’ll see, this is a recurring theme in big business.

After firing Peters and Guber, in 1996 Sony Chairman Nobuyuki Idei hired studio veteran John Calley to run Columbia. The Peters/Guber episode is pretty clear cut; they were flim-flam men who took Sony for a ride. With Calley the story becomes a bit more opaque, as it requires some understanding of Sony and Columbia’s corporate structure, which even those within the company don’t really understand, and the lack of clarity may not be an accident. After all, if you don’t know what someone is supposed to be doing, you certainly can’t hold them accountable for any failures. Each division of Sony has its own high level management structure, as if it were an independent corporation. Calley has been described by one observer as having a soothing “elegance of demeanor”, but was 66 years old when he took the job as chairman of the studio. (Well, we think he was chairman, but various news accounts refer to him as president, and other accounts simply as a “high ranking Sony official”.

None of which of which becomes all that much clearer when we examine the next in line to run Sony, or at least to have a top position, since it is very hard to actually tell who does what amongst all the titles. Howard Stringer, or to be more correct, Sir Howard Stringer, is one of the current examples of success in a world of globalization, becoming the first foreign born head of a Japanese electronics corporation when he was promoted to CEO of Sony in 2005. Born and educated in England, he attended the right university, Oxford. Despite being born in Britain and heading a Japanese corporation, he also has US citizenship, and has lived in the US since 1965 when he moved to the States to work for CBS as a documentary producer. He had a 30 year career at CBS, rising through the ranks to become president of the CBS Broadcast group in 1988. Just how successful the network was during this era, and who deserves the credit is not clear. But it is clear that he has well developed social skills. "He is so smooth" says an executive who ran a rival network at the time, I always called him the "vice-president, dinner". In an excellent article by industry observer Kim Masters, she says “to his detractors inside and outside Sony, Stringer's primary success has been managing his own relationship with his bosses.” And here, we should note, is the primary key to success in a large corporation.

In 1995, Stringer's friend Michael Ovitz persuaded Stringer to run Tele-TV, a joint venture formed by 3 phone companies to generate programming that would be transmitted over phone lines. The venture was a complete failure, and in 1997 Stringer made the switch to Sony, where he was hired, according to Masters, to “oversee nothing in particular.” He had no experience in electronics, and until Sony recruited him, he had never visited Japan. But “he was charming and polished. He put an appealing face on Sony's American operations.” He also hired his brother to run one of Sony’s divisions, the US division of Sony Music. He is now CEO and is vice-chairman of Sony, the whole enchilada, holding the highest rank of any non-Japanese in the company's history. Not only is Singer an Englishman, or transplanted American, running a Japanese company, and not only does he not have any experience in electronics, which is Sony’s most important division, but he also has no experience in any of the other very technical areas in which Sony is involved.

But it’s not just the people at the very top who are not necessarily qualified for their jobs, whatever those jobs may be. John Calley, you’ll recall from your discussion above, was chairman of Sony’s movie operations. He hired Amy Pascal as president of Columbia Pictures. She had a series of bombs, yet was promoted in 1999 to Chairman of Columbia. According to Masters, Pascal’s “duties apparently do not include cost control: the cost of this summer's Spiderman installment was over $200M.” As one producer put it: "Everyone knows she's not great at watching a buck. It's not her strength; it's not her interest." It’s difficult to comprehend how any successful business executive, to whom cost control should be second nature, can be described in this way. Of course, it is difficult for an outsider to figure out in a movie studio what a president does, as opposed to a chairman or CEO, and Columbia was described as “a thicket of executives and confusing relationships.”

Once Stringer was hired, he brought in yet another executive, Michael Lynton, about whom Masters had this to say: “soft spoken and affable, he made many more friends than enemies during his earlier stay. But insiders are finding it hard to figure out what qualifies him to do ...whatever it is he's supposed to do at Sony. As for Lynton, he is described as "a charming consensus seeker, with a formidable Rolodex, a consummate manager of his own career.” “I’m actually a Michael Lynton fan” says a leading agent. “But even in that context, I don’t get it. I haven’t called him because I don’t know what to say. ‘Welcome back and what are you doing?” At AOL, he ran international operations, and, prior to that, he oversaw the unsuccessful Hollywood Pictures film division at Disney from 1992 until it was folded in 1996.

Stringer intended that Lynton and Pascal work together in some way, although it’s not clear in what way. Stringer appointed Pascal chairman of Sony’s motion picture group. But Lynton was made chairman and chief executive of Sony Pictures Group. So, since Pascal was running a division of Sony Pictures Group, she theoretically reported to Lynton; except that she refused to do so. No matter, since the two have found some way to divide power, at least according to what they told Masters Of course, Sony Pictures Group is only a small part of Sony, so it’s likely that the higher ups, many of whom are based in another continent, and speak a different language, can’t follow this situation too closely. Is all this confusion an accident? Perhaps not. According to Masters, Stringer’s critics “see the awkward setup at the studio as part of a strategy to diffuse authority and accountability. “Howard can say ‘I’ve hedged the chances of any one person screwing us up by not giving any one person too much power’ says a veteran producer.

As for Stringer's corporate strategy, "It's a lot of elegant talk, a lot of lovely, very British talk. The question is, is there a there there? As of November 2006, Sony's stock has underperformed the Dow Jones Industrial Average and the NASDAQ, as well as competitors Matsushita and Phillips, though it has outperformed Microsoft, which is a recent entrant into the consumer electronics market. Stringer's performance has been called into question based on stock performance as well as numerous missteps by Sony in relation to digital copy-prevention, Sony's gaming division, and faulty laptop batteries.

But all that is, in a sense irrelevant, as the whole machine, like all big international corporations, has been made so complicated, perhaps by design, that perception matters more than reality. In March of 2001 Chairman Nobuyuki Idei told a magazine that Sony was moving forward “Precisely at this time.” They didn’t move forward in any way that can be perceived by those outside the company, but in early 2004 Howard Stringer told a trade publication “We have what is going to take entertainment into this next century. In the next two years, it will become obvious.” Of course, that it not true, and nothing ever materialized. It was, in fact, Apple, that moved forward with the music revolution that Sony had started with the Walkman. Apple’s iPod and iTunes carried the portable music revolution to the next stage. In other areas, there were huge innovations made in the digital entertainment and information space by innovative companies like Google, which did not even exist when Sony invented the Walkman.

If you can’t make sense of Sony’s corporate structure, you’re certainly not alone. But, in the meantime, all the executives continue to draw big salaries, doing whatever it is they do; or perhaps not doing it, but who would know?

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Quotes

What this also showed at the time was that hardly anyone around me truly knew anything. Shocking. They had the talk down, as if they knew everything, but ultimately nobody had a clue as to what the market was really going to do. As a matter of fact, very few in the brokerage business have that gift.

—Chris Gardner

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