Where Have All the Leaders Gone? Page 12

  DOING WELL BY DOING GOOD

  Let me share another story about a company that I’ve been privileged to be a part of. It’s an example of a new kind of business philosophy called common-good capitalism. I think of it as the dragon slayer of corporate greed.

  NuSkin is a Utah company that produces natural skin care products. When it was established in 1984, its Mormon founders wanted to do more than just make money. Mormons are do-gooders by nature. They actually believe that companies have an obligation to contribute to the social welfare.

  In 1996, NuSkin established the Force for Good Foundation, an arm of the company that supports relief efforts and community development projects all over the world. Twenty-five cents of every dollar made by selling NuSkin products goes straight into the foundation. And this is impressive: 100 percent of the foundation’s money goes to its projects. NuSkin covers all of the foundation’s overhead and operating costs.

  In 2002 I was approached by Blake Roney, the chairman and founder of NuSkin, and Truman Hunt, the president. They told me about a new foundation they were starting called Nourish the Children. They knew from the work my foundation had done on finding a cure for diabetes that I was interested in nutrition. And they guessed—correctly—that I would appreciate their brand of common-good capitalism. As a businessman, I was impressed by the quality of NuSkin’s products and its large worldwide distribution force. This was a well-run company. But what really got me hooked was NuSkin’s plan to end world hunger. I signed on, and I’ve been chairman of Nourish the Children’s advisory board ever since.

  Here’s the way it works. Pharmanex, a division of NuSkin that makes nutritional supplements, teamed up with some leading experts on malnutrition to find out what nutrient mix can bring a child back from starvation. They then created a nutrient-dense meal packet, called VitaMeal, that would meet all the needs of a malnourished child.

  Nourish the Children uses reputable relief agencies to distribute VitaMeal to needy children all over the world, including right here in the United States. So far, about seventy million meals have been distributed. The funding is mostly through NuSkin—a combination of company product donations and voluntary product donations from the global distributors and their customers. NuSkin encourages its employees to become Ambassadors—that is, to donate at least four bags of VitaMeal every month, and to enlist others to do so, too. And they reward employees who become Ambassadors. It’s kind of hard to get your head around the idea that a corporation would tell its workers that feeding hungry children is good for their corporate career paths.

  Blake Roney once told me, “Nourish the Children is five percent of what we do, but it’s ninety-five percent of who we are.” Whenever I pick up my newspaper and read another story about corporate greed, I think about Nourish the Children. I’ll bet most people have never heard of it. Wouldn’t it be great if we read more business stories that gave us an inspiring lift and fewer stories that made us sick to our stomachs? And wouldn’t it be a wonderful thing if corporate America got the idea that the best way to do well is by doing good?

  XIII

  Chrysler’s lesson: Resist the urge to merge

  In life we all have high points and low points. Sometimes you’re up and the sky’s the limit. Other times you’re down and you’re sweating bullets. The bad times lead to negative thoughts and you wonder, how the hell did I get into this mess?

  When I look back over almost fifty years in the car business, I see some real doozies on both the up and down sides of the scale. Introducing the Mustang in 1964 at the New York World’s Fair was a magic moment in my life. I was on a high then, and the Mustang’s success propelled me into the presidency of Ford in 1970. Me, an immigrant kid from Allentown, Pennsylvania, named president of the second-largest company in the world. Who would have dreamed it?

  Well, with the good comes the bad, and if being president of Ford was a high, being fired in 1978 from the same job was the pits. One day I was in the catbird seat and the next day I was reading the want ads. I got another job all right, but it was more like going from the frying pan into the fire. Chrysler was on the verge of bankruptcy. But with a lot of sacrifice, hard work, and luck, we turned the company around.

  When I retired from Chrysler at the end of 1992, I felt pretty satisfied with what I’d achieved. Chrysler was on top of the world. It was the perfect time to take a bow and exit. In the years after my retirement, things just got better. Chrysler was making a lot of money—something like a billion dollars every quarter. The minivan was a cash cow, the Jeep Grand Cherokee and Dodge Ram pickup were selling like crazy, we had 4,000 profitable dealers, a brand-new $1.5 billion research center, and $12 billion in cash. Chrysler was the lowest cost producer and the most profitable car company in the world, with sales of two and a half million cars and light trucks a year. It was a huge success story.

  So on the morning of January 12, 1998, when I woke up to the news that Chrysler had just been sold to the Germans, it knocked me for a loop. Of all the highs and lows I’d experienced, this was the lowest low. The news hit me where it hurt—deep in the groin. I was sick, I couldn’t sleep, I had a bad case of agita. How could this happen? I kept playing it over in my mind. I gave fifteen years of my life to saving that company and now I wondered if it was worth it. How could they take Walter Chrysler’s venerable company, a great American institution, and name it after a German?

  Was I emotional about the surprise announcement? You’re damn right I was emotional. The merger didn’t make sense at all. Chrysler was doing great. It should have been calling the shots on its own terms. It held all the cards. How did the company get maneuvered into giving it all away? I’m not kidding when I tell you that day was rock bottom for me. A real lower-than-whale-shit moment.

  What happened to DaimlerChrysler is a cautionary tale for every business that might be contemplating a merger. Don’t make any moves until you read this chapter.

  THE WORST DECISION I EVER MADE

  I’ll always believe that if I hadn’t chosen Bob Eaton to succeed me as chief executive at Chrysler, it would still be a strong, profitable, American car company. Eaton came to Chrysler from GM, and he got high marks on paper. But he just didn’t get it. Never did. That was my mistake. I can’t even blame the board. They trusted me. Eaton was my call, and I screwed up.

  Then, a couple of years after I retired, I inadvertently helped trigger a panic in Eaton that led to the whole sorry mess. In 1995, the billionaire financier Kirk Kerkorian, who owned 10 percent of Chrysler stock, came to me with an interesting idea. He wanted to buy Chrysler and take it private. He thought the stock was greatly undervalued. Kerkorian convinced me that taking Chrysler private was a win-win deal for everyone involved. We’d offer Chrysler shareholders $55 a share—a 40 percent premium over the market price of $39. Five percent of the company would be given to the management. And, most important, 20 percent of the company would be given to the workers.

  I believed that this would not be a hostile takeover, that Eaton was on board, and that the cash was in hand. But this proved not to be true. The deal never got off the ground. What it did do was trigger a panic in Eaton. He became obsessed with warding off any future takeover bids.

  This was a critical moment for Chrysler, when cooler heads might have prevailed. Eaton should have used it as an opportunity to evaluate the company’s future. He was sitting on top of the lowest-cost producer in the world, and he was running scared? Try explaining that one. Instead of thinking it through, Eaton plunged headlong into the merger with Daimler-Benz.

  Eaton believed Chrysler had to have a European partner to survive. He got outmaneuvered by the slick Daimler-Benz CEO, Jürgen E. Schrempp. What was Schrempp bringing to the table? Mercedes had only 1 percent of the American market, and no one could explain what the two companies had in common. I said at the time that it was the culture clash heard round the world—and I was right.

  When the deal was announced, Schrempp hailed it as “a merger of equals.
” That was a joke. You didn’t have to be a business wizard to see that it was a takeover. Schrempp was only interested in preserving Daimler’s heritage and the Karl Benz legacy. What about Walter P. Chrysler’s legacy—or mine? Who was defending them? If there was going to be a merger, shouldn’t the surviving company have been the great American car company?

  Instead, the new company was incorporated in Germany, which meant it couldn’t even be listed on the S&P 500 Index. Daimler held 57 percent of the stock, while Chrysler held only 43 percent. The decision makers were in Stuttgart and the bankers were in Berlin. The pretense that there would be co-CEOs—Schrempp in Stuttgart and Eaton in Auburn Hills—was completely unworkable. For one thing, whether you’re running a company or you’re running a country, the buck has to stop somewhere. You wouldn’t have two presidents, two kings, two popes. It’d never work. There never really were co-CEOs at DaimlerChrysler, because the same day the deal was announced, Eaton told the world he’d be retiring in three years and Schrempp would become the sole CEO. So, who were they kidding with all the talk about co-CEOs? What you had was one CEO (Schrempp) and one lame duck (Eaton).

  Then there was the question of the new entity’s name. What’s in a name? Everything. Originally, Eaton had proposed that the company be named ChryslerDaimler-Benz. Schrempp told him that was a deal breaker. It had to be DaimlerChrysler or the merger was off. Eaton wanted the deal so badly that he didn’t even try to call Schrempp’s bluff. Instead, he told the board that the name didn’t matter. He told them it was merely cosmetic. Yeah, tell that to Walter P. Chrysler, who must have been turning over in his grave. Eaton acknowledged that the name might have a temporary negative effect on worker morale, but they’d get over it. And not a single person on the Chrysler board stood up and said, “No. We will not betray our American roots.”

  I’d like to see the minutes of the board meeting when this merger was presented. Was everyone asleep? Did they think they were just innocent bystanders? I can tell you they weren’t asking any hard questions. Maybe they were too dazzled by the idea of a short-term bump in the stock price. I doubt that anybody asked, “Where is the synergy between these two companies?”

  It became immediately apparent that there was no synergy in the cultures of the two companies. Mercedes was stiff and formal, with layers upon layers of committees and subcommittees. Chrysler was loose and creative, something of a renegade in corporate culture. Its divisions were lean and market-driven. Mercedes came in with stacks of black books and a cast of thousands.

  Cultural synergy is important, but the real nuts and bolts of a successful merger is in product-and-sales synergy. From the product standpoint, the goal is to spread the costs over more units, by sharing product programs and platforms. The more common parts you can use under the skin of the vehicles, the more cost-effective you’ll be. In fact, the opportunity for product synergy, leading to huge savings, was one of the primary goals of the merger. It was announced that DaimlerChrysler expected to save $1 billion in the first year and $1.5 billion in the second year, just on the cost of parts. Right. I’d love to see that report. Who were they kidding? It never happened because there was absolutely no commonality between Mercedes and Chrysler at the manufacturing level. It didn’t help that the Mercedes engineering and design operations flat-out refused to share their expertise with the crass Americans. The one joint venture the merger managed to cough up, a sporty car called the Crossfire, epitomized everything that was wrong with the deal from the Chrysler vantage point. The Crossfire was heralded as a cross between German design and American marketing. It was doomed from the start. Chrysler plants were in an uproar when they learned the car was being built in Germany, and who could blame them? This car wouldn’t produce a single American job. Its arrival was a massive flop. Overpriced and underpowered, the Crossfire bombed across America, selling fewer than fifty thousand units in three years.

  It soon became obvious that this wasn’t much of a merger. Schrempp really ran the show, and Eaton was silent. The old Chrysler management—the very people who were responsible for its success—began to leave or retire, one by one, taking their fat payouts with them. The management was mostly German. All news releases for the company were written in German and translated into English! Hard to believe. Half the time, the folks in Auburn Hills were scratching their heads, wondering, What are they talking about? A joke making the rounds at the time got it pretty right:

  Q. How do you pronounce DaimlerChrysler?

  A. Daimler. The Chrysler is silent.

  Schrempp’s assurances that it would be a “merger of equals” was about as likely as finding a marriage of equals in Saudi Arabia.

  And what was Bob Eaton thinking? I’d say he was thinking something like, “How fast can I clean out my desk and get the hell out of here?” He basically took the money and ran. He retired in March 2000—a year short of his promised three years—saying his corporate goal had been reached. What was that corporate goal—to betray more than one hundred thousand American workers by turning over their proud, independent company to the Germans, while making himself rich? Call it a golden handshake or a golden parachute or a golden retirement. The point is, it was all golden for Eaton.

  With Eaton’s retirement, Schrempp dropped all pretense of the merger of equals, telling the London Times, “The Merger of Equals statement was necessary in order to earn the support of Chrysler’s workers and the American public, but it was never reality.”

  When Schrempp’s words reached Auburn Hills, the reaction was, “He didn’t really say that, did he?” Nobody could believe it. When it sank in, they were dumbstruck. The merger was really a takeover. Eaton had to have known that from the start, but he let it happen. There are plenty of people who will never forgive him—starting with me.

  Was anyone surprised when DaimlerChrysler started bleeding market share and dropping sales? By 2001, the company was worth about what Daimler-Benz alone had been worth at the time of the merger. Without being part of the S&P 500 Index, stockholders were bailing in droves, further driving down the share price. Its U.S. market share had plummeted from 16 percent to 13.5 percent. In 2001, Chrysler lost $2 billion and Mercedes lost $589 million.

  After Eaton’s flight and the firing of two American CEOs in succession, they finally got it right and found a great guy to run the company. Dieter Zetsche, the current German CEO of DaimlerChrysler, is the polar opposite of the rigid, autocratic Schrempp. After they put him in charge, he came to my house for dinner. He said he wanted to pick my brain. Well, that in itself was a good sign. Schrempp had liked to dictate orders. He hadn’t been much for listening. I liked Dieter. With his big walrus mustache and his folksy manner, he came across as being very different from the usual Stuttgart crowd. I admired his honesty and knew quickly he was a good engineer and product man. Our conversation was very productive. We talked cars, engineer to engineer. I asked the gut questions—what were the problems, what were the first steps he was going to take? He demonstrated a real knowledge of cars and the car business, and I believed him when he said it was his mission to restore the company to its former greatness.

  Dieter worked hard for three years, put together a good team, and won the respect of the American workers and the dealers. I give him a lot of credit for leadership. He succeeded in halting the downward spiral, but only briefly. As I write this, Chrysler is announcing huge layoffs, and there are rumors that Daimler is looking for a way to unload their American partner—maybe to China. Please, God, tell me this is a cruel joke. If Chrysler is kicked to the curb, it will be as a shattered remnant of the great American car company it once was. The seductive potential of the merger will have turned out to be nothing more than a mirage.

  DOES BIGGER ALWAYS MEAN BETTER?

  Why is everyone so merger-happy? There’s a strange logic that’s taken hold in the business world: When you’re facing stiff competition, the best response is expansion. But that’s not necessarily a winning strategy. When you stop to think about i
t, most of the great companies of our times began as upstarts—little Davids taking on big Goliaths. When I first heard about Fred Smith, the guy who created Federal Express, I thought the idea was crazy. I remember thinking, He’s going to take on the post office? Today Federal Express does such a huge business that even the U.S. Postal Service hires it to move a billion dollars in packages every year.

  I had the same reaction when I heard about Jack Taylor’s concept for Enterprise Rent-a-Car. I honestly didn’t think he’d make it. His plan was to go up against the big boys—the Hertzes and Avises—with only one difference. Enterprise would pick customers up at their doors. Jack’s slogan was “Pick Enterprise. We’ll pick you up.” Frankly, it didn’t seem like a great enough incentive to get people to switch from their favorite companies. Shows you what I knew. Enterprise is now the largest car rental company in North America.

  Here’s another one. When Ted Turner told me he was planning to take on the three networks with a twenty-four-hour-a-day news channel, I said, “Come on, Ted, who’s going to watch news twenty-four hours a day?” I thought CNN would last about six months. That was strike three for me!

  These were three innovators on a small scale that turned into massive successes. There are plenty of examples of upstarts beating the giants, because the giants have become too fat and arrogant. They’ve stopped looking ahead. In 1943, Thomas Watson, the chairman of IBM, said, “I think there’s a world market for maybe five computers.” Okay, we can give Watson the benefit of the doubt; 1943 was a little bit early for computers. But it’s hard to excuse Ken Olsen, the president and founder of Digital Equipment Corporation, who said in 1977, “There is no reason anyone would want a computer in their home.” These Goliaths never saw it coming.