What to do when the person who founded a company has done something to bring his creation into disrepute, especially when this individual personifies the company’s image?
This is the question facing British-based WPP, the world’s largest advertising company, after the board asked an independent law firm to investigate alleged wrongdoing by its chief executive Sir Martin Sorrell. The nature of the allegations has not been disclosed, but Sir Martin has “unreservedly” denied any wrongdoing.
Unlike many large corporations run by charismatic chief executives, the head of WPP controls no more than 2 per cent of the equity. Sir Martin has frequently stated that the board can sack him at any time as there are no contractual obstacles to prevent this; he may now regard the pride he has taken in this state of affairs to be an act of hubris.
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What cannot be denied is that WPP would not be the company it is today without him. The same could be said of many companies founded by strong personalities and dominated by them.
But what happens when directors believe that their continuing presence is a liability and force them out? The fate of The Weinstein Company, once one of Hollywood’s most powerful film studios, provides a cautionary example of meltdown in the wake of the sex scandal engulfing one of its founders, Harvey Weinstein.
The Wynn betting conglomerate, founded by Stephen Wynn, may yet go the way of The Weinstein Company after Wynn was forced out following a mini-avalanche of sex allegations. As matters stand, Wynn Resorts, the listed company, has survived and found a way of replacing Wynn, in part with Hong Kong entrepreneur Allan Zeman as non-executive chairman of Wynn Macau, although highly damaging lawsuits are pending.
In different ways, all these charismatic leaders managed to be successful without being popular. Sir Martin was often viewed as a miserly bean counter by the so-called creatives at WPP, Weinstein was foul-mouthed and prone to bullying, while no one has ever seriously suggested that Wynn gained success through charm. Yet they all created very impressive companies, run in a highly personal manner. Without them, there is a void or, in the case of Weinstein, ignominious bankruptcy.
But what of other tycoons who have created even bigger and more impressive companies and personified their very existence? Tesla’s Elon Musk quickly comes to mind, not least because of his micromanagement style but also because of his notable failure to grant autonomy to other executives.
It might be argued that a company pushing new boundaries and having boundless aspiration as its core DNA cannot afford a democratic management style. It needs the vision and determination of a single boss, yet that boss is now thinly stretched and fighting rearguard actions on a number of fronts. Is it time for his board to insist on some delegation? It is not clear whether the board is in a position to do this.
Musk owns about 20 per cent of the company’s shares, while Mark Zuckerberg, the CEO of Facebook, owns around a quarter of the equity but controls over 50 per cent of the votes. As recent events have shown with Facebook plunging deeper into a data disclosure scandal, Zuckerberg is much stronger on the tech side than he is at managing what might be described as the political affairs of one of the world’s biggest companies. As the scandal escalated, the boss retreated into the background, only to emerge briefly enough to aggravate, rather than placate, Facebook’s critics. Zuckerberg was grilled by US lawmakers on his handling of Facebook users’ data at a Congressional hearing today.
Zuckerberg, however, appears to be immovable as Facebook’s CEO and it seems that no one in the company has the ability to tell him how to handle the current debacle, so what are the independent directors to do?
The dictatorial and highly personal management style is, incidentally, the norm, rather than the exception among Asia’s biggest companies, not least because so many of them are still in their first or second generation. This is one reason these companies tend to follow the practice of dynastic succession, which solves one problem but creates others.
Self-confidence is an obvious personality trait among successful tycoons, almost equally counterbalanced by a reluctance to listen to criticism. The famous checks and balances that are supposed to be the hallmark of sound business practice are notably missing in companies dominated by single personalities.
So there is a circle to be squared: how are companies created by the sheer force of personality and ability of their founders to survive if they are pushed out? The obvious answer is a viable succession plan, yet these company founders are rarely keen to let go and the companies they have established possess few means of forcing them to do so.
Stephen Vines runs companies in the food sector and moonlights as a journalist and a broadcaster
This article appeared in the South China Morning Post print edition as: Chiefs far too big to fail