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And the Theranos Board Walks Away Scot-Free

November 19, 2022 By Nagesh Belludi Leave a Comment

Theranos: Elizabeth Holmes Sentenced, Directors Walk Away Scot-Free? Theranos’s Elizabeth Holmes has finally been sentenced to over 11 years in prison. Too bad our corporate law is too narrow to attribute some criminal liability to the company’s board of directors. Such luminaries as former Secretaries of State George Shultz and Henry Kissinger, Marine Corps General James Mattis, and former Secretary of Defense William Perry, once famously portrayed as “the single most accomplished board in U.S. corporate history,” should be partly culpable for Holmes’s malfeasance.

When Holmes explained away her underlying technology as “a chemistry performed so that a chemical reaction occurs and generates a signal from the chemical interaction with the sample, which is translated into a result, which is then reviewed by certified laboratory personnel,” all the board had to do was demand, “Show me.” Determining how a device or service works—exists even—as purported, would seem to be the essential obligation of a board member. A truly engaged overseer may have preserved $945 million in investors’ capital and kept a naïve, immoral, and feckless entrepreneur from bullying the press, intimidating her employees, and gambling with the lives of patients. (Read WSJ reporter John Carreyrou’s excellent chronicle, Bad Blood (2018; my summary).)

The board individually and collectively failed in their responsibilities as trustees of investors’ interests. Undoubtedly drafted as trophy directors to reinforce the company’s standing such as it was, not for any knowledge of blood testing, they now walk away with nothing more than a blot on their illustrated careers.

Book Summary: Jack Welch, ‘The’ Man Who Broke Capitalism?

June 23, 2022 By Nagesh Belludi Leave a Comment

The Man Who Broke Capitalism (2022) by New York Times columnist David Gelles contends that the pernicious greed spawned by former General Electric CEO Jack Welch is exceptionally responsible for exposing the structural failings of capitalism in recent decades.

The danger inherent in any ideology grows stronger when it starts to thrive because it swiftly morphs into temptation—a voracious appetite for ever better “returns” in the present case. Welch was indeed the most visible catalyst and a much-imitated champion of brutal capitalism. But Gelles’s narrative draws his book’s lengthy subtitle (“How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America”) excessively, thrusting ad nauseam the well-founded thesis against Welch’s ploys and “the personification of American, alpha-male capitalism.” See my previous articles (here, here, and here) about how the faults of Welch’s strategy become evident many years after his retirement.

Gelles does an agreeable job of outlining the socioeconomic paradigm that has made modern western capitalism’s shortcomings ever more apparent. Starting with influential economist Milton Friedman’s decree in the ’70s that the one and only social responsibility of a business is to maximize profits, Gelles explains the revering of Welch’s “downsizing, deal-making, and financialization” strategy. Without balance, it provided short-term benefits for shareholders, but the long-term well-being of corporations and society lost out. A sense of restraint is most pertinent to the power of capitalism.

Summary of 'The Man Who Broke Capitalism' by David Gelles Capitalism isn’t irretrievably bound to fail, as Gelles rightly argues, but it needs to be rethought. It’s morally incumbent upon the social order to inhibit the embedded incentives that create powerful tendencies towards short-termism. Gelles offers no more realistic, objective insights than the familiar solutions prescribed by our career politicians.

Overall, Gelles’s pro-Fabian polemic falls short of a fair-minded assessment of the epoch’s economic forces. Indeed, many of Welch’s tactics were timely and necessary, but he pushed them farther and longer. Too, Gelles fails to study counterexamples of many corporate leaders who’ve thoughtfully copied Welch’s playbook and helped their businesses and communities prosper, not least because they were restrained enough to avoid Welchism’s blowbacks.

Recommendation: Speed Read The Man Who Broke Capitalism for a necessary reappraisal of the legacy of Jack Welch. There isn’t much eye-opening here, but author Gelles affords a relevant parable about the power of restraint and the time- and context-validity of ideas.

Don’t Be Deceived by Others’ Success

November 15, 2021 By Nagesh Belludi Leave a Comment

Imitating successful competitors is a leading pathway to business innovation. Benchmarking can offer meaningful insights into comparative performance and help discover learnings for improvement. However, adopting others’ best practices can be surprisingly misleading and ineffective.

Four perception biases that come with benchmarking other companies can fail to make yours any better.

Many companies luck into success.

Don't Be Deceived by Others' Success As I’ve noted before, you can’t reproduce others’ luck. Successful companies tend to significantly overvalue the effect of their leaders’ deliberate decisions on their performance and understate the role of chance—being at the right time, at the right place, with the right people. Alas, what worked in their circumstances may not work in yours.

The set-up-to-fail syndrome.

Benchmarking can be remarkably misleading when you make oversimplified comparisons to superstars who may not represent your situation. You could sink your business if you blindly copy celebrity leaders’playbooks in the wrong context, product, strategy, or market.

Companies that benchmark Apple and Steve Jobs and sidestep market research often disappoint themselves when their product launches fail. The leaders of these companies neither have Jobs’s brilliant intuition nor his extraordinarily talented creative team to build what customers want but didn’t know they wanted yet.

In the same way, companies that imitate the 20-70-10 “rank and yank” processes from Jack Welch’s playbook often fail to realize that several factors contributed to their success at General Electric. Welch had a robust organizational culture that insisted on regular and candid employee feedback and robust personnel processes for recognizing and developing the best talent within the company.

Corporate culture is a tricky business.

Your company’s culture—the prevailing way your people feel, think, behave, and relate to one another—cannot be changed easily. One industrial company aborted trying to imitate Google’s culture. This company couldn’t get its managers and employees to be more autonomous and innovative because the company’s and the industry’s ingrained culture did not lend itself to experimentation, risk-taking, and the celebration of fast failure.

Benchmarks look backward, not forwards.

In a competitive, ever so fast-changing world, what has succeeded in the past ten years may not necessarily do so in the next 10. The management guru Tom Peters once warned, “Benchmarking is stupid! Because we pick the current industry leader, and then we launch a five-year program, the goal of which is to be as good as whoever was best five years ago, five years from now.”

A strong focus on “quick wins” can turn out long-term losers.

Benchmarking can make short-term gains but have adverse long-term effects that may not manifest until many years later. By imitating an industry leader, a capital goods company decided to boost efficiency by outsourcing design to its suppliers. Years later, it discovered the debilitating effects of the loss of vital technical knowledge.

Idea for Impact: Best practices only add value when applied in the proper context

Applying best practices in the wrong context is a sure-fire way to hold your company back.

Pay attention to all ideas, mull them over, test what makes sense, adopt what works, and discard what doesn’t.

Sure, help yourself to great ideas wherever you can get them, but be mindful of the context. Try to understand how the top performers’ circumstances and culture may be causing their success. Think through the long-term consequences of any decision you take or any practice you adopt.

Power Inspires Hypocrisy

July 27, 2020 By Nagesh Belludi Leave a Comment

Mark Hurd, whom I featured in Friday’s article, was one of the most respected and eminent leaders in Silicon Valley until his mighty fall following his dalliance with a contractor during his time as CEO of Hewlett Packard (HP.)

Hurd had hired this contractor, a glamour model, as a “hostess” for “executive summit events,” even at out-of-town places where there is no HP event, but Hurd happened to be.

Power Corrupts and Inspires Hypocrisy Hurd was ultimately exonerated of violating HP’s sexual-harassment policy (nothing was consummated with the contractor, and Hurd settled with the accuser for undisclosed terms) but he was officially charged with drumming up expense reports.

Hurd walked away from HP with a $34 million severance package. Almost immediately, he became co-president of Oracle, earning $11 million a year and options.

Much has been speculated about the real reasons HP’s board gave Hurd the boot, especially considering that he probably falsified his just an expense report just the once. Even then, said expenses were petty compared to the massive turnaround he had engineered at HP after walking into a very troubling situation. Hurd was famed for his no-nonsense management style and for finagling a culture of operational excellence at HP.

When the Hurd controversy broke out, Wall Street Journal’s Jonah Lehrer argued that when nice people rise to positions of power, “authority atrophies the very talents that got them there.”

The very traits that helped leaders accumulate control in the first place all but disappear once they rise to power. Instead of being polite, honest and outgoing, they become impulsive, reckless and rude.

Contrary to the notion that nice guys finish last, research shows that the surest way to accumulate power is to do unto others as you would have them do unto you.

But once nice guys reach the top, the headiness of wielding power causes them to morph into a very different kind of beast. They lose their ability to empathize with others, especially lesser mortals, and ignore information that doesn’t confirm what they already believe. Most tellingly, perhaps, they learn to excuse faults in themselves that they are quick to condemn in others. That’s not to say that every CEO is a secret villain. But even the most virtuous people can be undone by the corner office.

Idea for Impact: Power can become an enabler of corruption, deceit, and hypocrisy. People in positions of power have incentives to hold others to strict account for their behaviors even as they themselves act up, especially when the odds of being caught and punished are slim.

The Checkered Legacy of Jack Welch, Captain of Wall Street-Oriented Capitalism

March 16, 2020 By Nagesh Belludi Leave a Comment

The legendary Jack Welch, the former Chairman and CEO of General Electric (GE) 1981–2001, died two weeks ago.

Welch was the most prominent business leader of the post-war era. Under his leadership, GE metamorphosed into one of the world’s largest, most profitable, and best-admired companies. He expanded GE’s market capitalization from $12 billion to $410 billion on the back of the steady economic expansion of the 1990s. Welch also became the poster child for “new globalization,” and GE led American companies in gaining access to new markets and lower-cost labor. (Note: GE Medical Systems was one of my first consulting clients out of college.)

For nearly three decades, until his star faded away in about 2008, Welch was the talk of corporate America. He was lionized for streamlining the industrial giant’s top-heavy bureaucracy and empowering managers to spot problems and make changes promptly.

Welch became the font of all sorts of pearls of management wisdom. He was the exemplar after whom American managers patterned themselves—“What Would Jack Do?” became a familiar business mantra. Companies borrowed six-sigma, rank-and-yank, stretch goals, and his other managerial innovations. In 1999, Fortune magazine designated Welch as the “manager of the century.”

Jack Welch Legacy #1: The Messy and Embarrassing $180 Million-Divorce

In 2002, Welch’s reputation took a first big hit when his wife Jane Welch exposed his extramarital affair with Harvard Business Review editor Suzy Wetlufer (later his third wife.) The affair started when she was interviewing him for her publication. Jane, a sharp corporate lawyer whom Jack had extolled as “the perfect partner” in part for taking up golf and playing with his business associates, had even confronted Wetlufer over the phone and cast doubt on her journalistic objectivity.

Welch’s private life became fodder for gossip, and he became a regular feature in New York’s supermarket tabloids. The proceedings of the divorce divulged the extravagant pension benefits that Welch had gotten for himself. Among other lavish allowances, he had kept a company plane and an apartment in New York’s Central Park West—just these cost GE some $1.7 million a year. GE would supply Welch with fresh flowers, wine, dry cleaning, and even vitamins. After a public outcry, Welch was forced to forfeit many of these retirement benefits.

Jack Welch Legacy #2: The Aura Deflated

Welch transformed GE into a super-conglomerate and a Wall Street-darling during his 21-year tenure as CEO. Sadly, Welch’s business model became overly complicated, and many of the mistakes of his strategic deals manifested years later. The most consequential case in point was GE Capital, the finance division that delivered the parent company a near-fatal blow during the 2008 financial crisis. Welch had overconfidently let GE Capital grow unchecked during his tenure, and its easy profits had masked problems at GE’s core industrial divisions.

After a much-publicized “Super Bowl of CEO succession planning,” Welch bequeathed his successor Jeffrey Immelt with a puffed-up corporation. Welch retired in September 2001, and the “house that Jack built” started to crumble right away in the wake of the 9/11 attacks. After failing to curb GE’s sagging profits, Immelt was fired in 2017 following his ill-timed deals for GE’s power division.

All told, Welch’s undoing was his exceptional obsession with shareholder value. He made countless deals—many unrelated to GE’s traditional core competencies—and championed corporate efficiency to the detriment of initiatives that may have sustained GE’s long-term competitiveness.

GE is now a derelict shadow of its former self. Its market capitalization has fallen from a peak of $600 billion in 2000 to $82 billion today.

Jack Welch Legacy #3: The “GE Man” Turned out a Dud

Welch’s other legacy was going to be the “GE Man.” Trained at the knee of Welch, GE’s vast managerial talent was commonly recognized as one of the world’s best. Its leadership development program, headquartered at the famed Leadership Center in Crotonville, New York, was the best training ground for future executives. In April 2005, Fortune magazine noted,

When a company needs a loan, it goes to a bank. When a company needs a CEO, it goes to General Electric, which mints business leaders the way West Point mints generals. … One headhunter estimates the company harbors another dozen execs of FORTUNE 500 caliber.

Alas, Welch’s protégés were mostly disappointments. Much of the long line of managers whom he had mentored at GE has failed to achieve runaway success in running big firms—3M, Boeing, Chrysler, Home Depot, Honeywell, Pentair, ABB, and, undeniably, GE itself.

John Flannery, another “GE Man” who succeeded Immelt, was fired after just 14 months. Flannery was replaced by Larry Culp, the first outsider to run GE in the company’s 126-year history!

Jack Welch Legacy #4: “Jack’s Rules” for Management Success

Welch and his management style earned much criticism for insensitiveness and abrasiveness. Yet, some of his leadership techniques are worth emulating.

Nurture a “boundaryless” culture. Cultivate an open organization by removing the barriers that inhibit people and organizations working together. Foster an informal culture that expedites the free flow of ideas, people, and decisions.
Involve everybody to enhance productivity. Welch instituted a brainstorming process called “Work-Out” that enabled frontline employees and workers to propose improvement ideas to the bosses who are required to take action “on the spot.”
Empower people. Delegate and get out of the way. “We now know where productivity-real and limitless productivity-comes from. It comes from challenged, empowered, excited, rewarded teams of people.”
Embrace meritocracy. Let ideas and intellect rule over hierarchy and tradition. “The quality of the idea is determined by the idea, and not the stripes on your shoulder.”
Eliminate bureaucracy. “Anything that you can do to simplify, remove complexity and formality, and make the organization more responsive and agile, will reduce bureaucracy.” Welch once called bureaucracy “the Dracula of institutional behavior,” since red tape and rules and regulations tend to rise from the dead every few years.
Simplify. Drop unnecessary work. Work with colleagues to streamline decision-making. “The way to harness the power of these people is not to protect them … but to turn them loose, and get the management layers off their backs, the bureaucratic shackles off their feet and the functional barriers out of their way.”
Focus on continuous improvement. “Don’t sit still. Anybody sitting still, you can guarantee they’re going to get their legs knocked out from under them.”
Act with speed. “Speed is everything. It is the indispensable ingredient in competitiveness.”
Get good ideas from everywhere. Study competitors. Abandon the “not invented here” mindset and embrace best practices that are “proudly found elsewhere.”

Welch’s playbook has been studied in dozens of management books, including the three best-sellers he wrote: Jack: Straight from the Gut (2001,) Winning (2005; with wife Suzy Welch,) and The Real-Life MBA (2015; also with Suzy.)

Jack Welch: Captain of Capitalism Whose Star Faded Away

Welch’s most significant legacy will be the Wall Street-orientation of business corporations. He promoted an obsessive focus on creating shareholder value, and in so doing, helped incite the current fixation on quarterly earnings. That, and the burn out of the General Electric that Welch left behind, is testimony to the potential after-effects of sacrificing the long-term well-being of corporations to meet short-term targets.

Creativity by Imitation: How to Steal Others’ Ideas and Innovate

October 22, 2018 By Nagesh Belludi Leave a Comment

Innovation by Imitation: Many Innovations Come from the Outside---How Henry Ford Developed the Moving Assembly Line for the Model T

Emulating others’ ideas is an underappreciated learning tool. Many creative innovators set forth as remarkably astute mimics of others. “Good artists copy, great artists steal,” prods a creator’s maxim often misattributed to Picasso.

Imitation is a leading pathway to business innovation, even if being an imitator is anchored by a sense of derision. Ever more businesses are nicking great ideas wherever they can obtain them—in their own industries or beyond. Hospitals have adapted safety and efficiency procedures from the military and the airline industry. Aircraft manufacturers have adopted the car industry’s lean supply chain management concepts. Ritz-Carlton, the luxury chain of hotels and resorts, runs the Ritz-Carlton Leadership Center that has helped trained its legendary cult of customer service and employee empowerment best practices to managers from companies across industries.

Creativity by Taking Existing Ideas: Applying Them in a New Context

The most prominent example of innovating by imitation is Ford’s development of the automobile assembly line—a system Henry Ford copied (and improved) from the Chicago meat processing business.

Innovation by Imitation: Genesis of the Moving Assembly Line Henry Ford’s relentless ambition to build his Model T a high-volume-low-cost automobile, together with his engineering knowledge and manufacturing experience provided the leadership and creative environment that nurtured the development of the moving mechanical assembly line. Today, the moving assembly line is the epitome of manufacturing. Almost everything that is now industrially manufactured—automobiles, aircrafts, toys, furniture, food—passes down assembly lines before landing in our homes and offices.

The genesis of the moving assembly line is in the American agricultural products industry. During the late 18th century, the movement of grains changed from hand labor to belts and later moving hoppers.

Innovation by Imitation: Many Innovations Come from the Outside

Innovation by Imitation: Chicago Slaughter Houses Pioneered the Moving Disassembly Line Before Henry Ford Started His Assembly Line By 1873, Chicago’s meat-processing industry adapted belts and hoppers to transform beef and pork production into a standardized, mechanized, and centralized business. After cows and pigs travelled to their fate in train cars from farms throughout the Midwest, they were dropped into hoppers and killed. Conveyor belts then moved carcasses past meat cutters, who progressively removed various sections of the animal, cut them into appropriate sizes, and repackaged and dispatched processed meat across the United States.

The meat processors’ task was disassembly (as opposed to putting together automobile parts in Ford’s plants.) Each worker had a specific, specialized job. Production moved swiftly. The American writer Upton Sinclair famously described this industry’s ghastly working conditions in his acclaimed novel The Jungle and said, “They use everything about the hog except the squeal.”

Chicago Slaughter Houses Were the Pioneers of the Moving Disassembly Line Before Henry Ford Started His Assembly Line

In the early 1900s, when Henry Ford wanted to keep Model T production up with demand and lower the price, Ford’s team explored other industries and found four ideas that could advance their goal: interchangeable parts, continuous flow, division of labor, and cutting wasted effort. Ford’s engineers visited Swift & Company’s Slaughterhouse in Chicago and decided to adopt the “disassembly line” method to build automobiles.

The introduction of the moving assembly line process in 1913 enabled increased production up to 1,000 Model Ts a day and decreased assembly time from 13 hours to 93 minutes. Additional refinement of the process, thanks to reliable precision equipment and standardized shop practices, shortened production time radically: within a few years, a new Model T rolled off the assembly line every 24 seconds. First produced in 1908, the Model T kept the same design until the final one—serial number 15,000,000 rolled off the line in 1927.

Auschwitz-Birkenau and Victims of the Holocaust

Sadly, just as Henry Ford copied the Chicago meat processing and perfected the moving assembly line, the Nazi apparatus copied Ford’s methods of mass production to massacre six million people. While Midwestern butchers processed the livestock carcasses, the Nazis systematically handled corpses of the victims of the Holocaust. Nazi operatives removed victims’ hair, clothing, shoes, gold teeth, hairbrushes, glasses, suitcases, and anything of value to be repurposed for the Reich. The atrocities of this inexpressibly shocking disaster are on display at the train tracks and the museums of Auschwitz-Birkenau, Poland.

Formal Strategic-Benchmarking Programs

Smart businesses have formal strategic-benchmarking programs to achieve significant efficiency improvements: they pinpoint the strategic capabilities that matter most to their businesses, seek out companies or businesses that currently manage those capabilities best, and try to copy and deploy those capabilities as rapidly as possible. But time is of the essence for the success of these undertakings, as the management guru Tom Peters warns,

I hate Benchmarking! Benchmarking is stupid! Why is it stupid? Because we pick the current industry leader and then we launch a five-year program, the goal of which is to be as good as whoever was best five years ago, five years from now. Which to me is not an Olympian aspiration.

Imitation is a Key Characteristic of Highly Creative People: The Case of Steve Jobs Copying from Xerox

One of the key characteristics of highly creative people is their exposure to and experience with working in several related domains. They are very good at crossing domain boundaries, relating their creativeness in new and perhaps unexpected ways, and adapting knowledge into new domains. The following case of one of history’s most famous innovators illustrates this distinguishing characteristic.

Steve Jobs of Apple introduced the revolutionary Lisa computer in 1983. It featured such innovations as the graphical user interface, a mouse, and document-centric computing. Jobs had taken—and refined—all these inventions from Xerox’s PARC research labs and introduced by Xerox on its commercially-unsuccessful Alto and Star computers in 1981. The biographer Walter Isaacson writes in his best-selling Steve Jobs: “The Apple raid on Xerox PARC is sometimes described as one of the biggest heists in the chronicles of industry.” Isaacson cites Jobs: “Picasso had a saying—‘good artists copy, great artists steal’—and we have always been shameless about stealing great ideas… They [Xerox management] were copier-heads who had no clue about what a computer could do… Xerox could have owned the entire computer industry.”

Innovation by Imitation: Steve Jobs of Apple copied Xerox's PARC innovations in graphical user interface, a mouse, and document-centric computing

Idea for Impact: Borrow Ideas from Others and Combine Them with Your Own Creativity

Interestingly, many “benchmarking” exercises in the world of business—even academia—do not come “top-down” out of strategy. In other words, innovations by imitation are typically not driven from the top down. Instead, they materialize from everyday operational challenges—those painful experiences that send managers scuttling for solutions in a hurry.

Look outside your industry. To improve your creativity, try spending time researching other smart companies—even those outside of your industry. Learning directly from other companies is a useful, underutilized form of research for finding ways to improve performance.

Attend to developments at your competitors and in other industries. Look for potential opportunities that have been discovered elsewhere. Avoid the “not invented here” syndrome—don’t reject other’s great ideas. Keep an open mind.

The Dramatic Fall of Theranos & Elizabeth Holmes // Book Summary of John Carreyrou’s ‘Bad Blood’

September 10, 2018 By Nagesh Belludi Leave a Comment

The Fall of Theranos and Elizabeth Holmes

Bad Blood: Secrets and Lies in a Silicon Valley Startup (2018) is Wall Street Journal investigative reporter John Carreyrou’s remarkable exposé on Theranos, the former high-flying Silicon Valley tech startup founded by Elizabeth Holmes.

Theranos formally dissolved last week after a high-profile scandal revealed that the company not only deceived investors, but also risked the health of thousands of patients.

A Gripping Narrative, A Charismatic CEO, and A Big Fraud

In 2015, Theranos was one of Silicon Valley’s superstars. Valued at some $9 billion, Theranos claimed an out-and-out disruption of the $73-billion-a-year blood testing industry. Elizabeth Holmes pitched a revolutionary technology that could perform multiple tests on a few drops of capillary blood drawn by a minimally invasive finger prick, instead of the conventional—and much dreaded—venipuncture needle method.

The Story of Theranos and Elizabeth Holmes received much adulation by the media Theranos has its origins in 2004, when the brilliant Holmes, then a 19-year old Stanford sophomore, dropped out of college to start the company. Her missionary narrative swayed just about everyone to believe in the potential she touted.

Over the years, Theranos attracted a $1 billion investment, an illustrious board of directors, influential business partners (Walgreens, Safeway, Cleveland Clinic,) and significant amounts of adulation by the media—all of this lent credence to Holmes’s undertaking. She was celebrated as the youngest, self-made female billionaire in the world.

Nobody Asked the Hard Questions

Theranos’s castle in the air started to crumble in October 2015, when Carreyrou’s first Wall Street Journal article reported that the company was embellishing the potential of Theranos’s technology. Based on past employees’ disclosures, the article also cast serious doubts on the reliability of Theranos’s science. Behind the scenes, Theranos performed a majority of its blood tests with commercial analyzers purchased from other companies.

The persistent question in Carreyrou’s Bad Blood is how the many smart people who funded, endorsed, defended, and wrote about this company never set aside their confidence in Holmes’s persuasions and looked beyond her claim of “30 tests from one drop of blood.”

Without much independent due diligence, Theranos’s supporters possibly assumed that everyone else had checked out the company, its founders, and its science. Theranos got away with its actions for as long as it did because no one could conceive of the idea that the business would simply lie as much as it did.

The Story of Theranos and Elizabeth Holmes Appeared so Promising That Everybody Wanted it to Be True

Bad Blood also draws attention to Silicon Valley’s many failings, including the cult of the celebrity founder. Holmes’s smoke and mirrors was enabled by the notion of a “stealth mode” in which many Silicon Valley startups operate to protect their intellectual property. Theranos never proved that its testing technology really worked. It was performing tests on patients without having published peer-reviewed studies, getting FDA certification, or carrying out external evaluation by medical experts.

Carreyrou acknowledges that Holmes’s initial intentions were honorable, even if naïve. What triggered Holmes’s downfall was the characteristic entrepreneurial “fake it till you make it” ethos—it inhibited her from conceding early on that her ambitions were simply not viable.

When things didn’t go as intended, Holmes exploited the power of storytelling to get everyone to buy into her tales. She continued to believe that the reality of the technology would catch up with her vision in the future. Trapped in a web of hyperbole and overpromises, Holmes and her associate (as well as then-lover) Sunny Balwani operated a culture of fear and intimidation at Theranos. They went as far as hiring superstar lawyers to threaten and silence employees and anyone else who dared to challenge the company or expose its deficiencies.

Book Recommendation: Bad Blood is a Must-Read

Every inventor, entrepreneur, investor, and businessperson should read Bad Blood. It’s a fascinating and meticulously researched report of personal and corporate ambition unraveled by dishonesty. This page-turner is a New York Times bestseller and is expected to be made into a movie.

Beware of Key-Person Dependency Risk

September 7, 2018 By Nagesh Belludi

Beware of Key-Person Dependency Risk

Key-Person Dependency Risk is the threat posed by an organization or a team’s over-reliance on one or a few individuals.

The key-person has sole custody of some critical institutional knowledge, creativity, reputation, or experience that makes him indispensable to the organization’s business continuity and its future performance. If he/she should leave, the organization suffers the loss of that valued standing and expertise.

Small businesses and start-ups are especially exposed to key-person dependency risk. Tesla, for example, faces a colossal key-man risk—its fate is linked closely to the actions of founder-CEO Elon Musk, who has come under scrutiny lately.

Much of Berkshire Hathaway’s performance over the decades has been based on CEO Warren Buffett’s reputation and his ability to wring remarkable deals from companies in duress. There’s a great deal of prestige in selling one’s business to Buffett. He is irreplaceable; given his remarkable long-term record of accomplishment, it is important that much of what he has built over the years remains intact once he is gone. Buffett has built a strong culture that is likely to endure.

Key Employees are Not Only Assets, but also Large Contingent Liabilities

The most famous “key man” of all time was Apple’s Steve Jobs. Not only was he closely linked to his company’s identity, but he also played a singular role in building Apple into the global consumer-technology powerhouse that it is. Jobs had steered Apple’s culture in a desired direction and groomed his handpicked management team to sustain Apple’s inventive culture after he was gone. Tim Cook, the operations genius who became Apple’s CEO after Jobs died in 2011, has led the company to new heights.

The basic solution to key-person dependency risk is to identify and document critical knowledge of the organization. (Capturing tacit knowledge is not easy when it resides “in the key-person’s head.”) Organizations must also focus on cross-training and succession planning to identify and enable others to develop and perform the same tasks as the key-person.

Idea for Impact: No employee should be indispensable. A well-managed company is never dependent upon the performance of one or a few individuals. As well, no employee should be allowed to hoard knowledge, relationships, or resources to achieve job security.

Power Corrupts, and Power Attracts the Corruptible

January 12, 2018 By Nagesh Belludi Leave a Comment

Picture of Statue of Demon Mahishasura atop Chamundi Hills in Mysore, India The recent sexual misconduct allegations of influential men abusing their towering positions for contemptuous behaviors provide yet another reminder that power corrupts. As the British politician and historian Lord John Dalberg-Acton famously wrote in an 1887 letter to the Anglican Bishop Mandell Creighton,

Power tends to corrupt and absolute power corrupts absolutely. Great men are almost always bad men, even when they exercise influence and not authority: still more when you superadd the tendency or the certainty of corruption by authority. There is no worse heresy than that the office sanctifies the holder of it. That is the point at which … the end learns to justify the means.

The recent scandals lay bare the three distinctive characteristics of the intoxication of power: the inflation of the self, the devaluation of the helpless, and a dreadful shortfall in self-awareness of actions and consequences.

In the case of studio executive Harvey Weinstein, the worse outrage is that, many prominent people, despite their awareness of Weinstein’s uninhibited abuse, stayed silent—and possibly benefited. Some Hollywood celebrities are said to have overlooked his transgressions. Meryl Streep, one of Hollywood’s most successful actors, who once referred to Weinstein as ‘God,’ had to contend the blame that everyone in Hollywood knew of Weinstein’s conduct. His staff sheltered him or paid off victims, many of whom chose to remain silent for fear of derailing their budding careers. Going public would have hurt them more than it would have damaged Weinstein, until those accusations reach a critical mass and suddenly everyone flipped against him.

The Intoxication of Power

The British philosopher Bertrand Russell first wrote about the “intoxication of power” in A History of Western Philosophy (1945,) and best described what develops in the minds of many people who, in all walks of life, exercise a measure of power and dominance.

The Greeks, with their dread of hubris and their belief in a Necessity or Fate superior even to Zeus, carefully avoided what would have seemed to them insolence towards the universe. The Middle Ages carried submission much further: humility towards God was a Christian’s first duty. Initiative was cramped by this attitude, and great originality was scarcely possible. The Renaissance restored human pride, but carried it to the point where it led to anarchy and disaster. … Man, formerly too humble, begins to think of himself as almost a God.

…

In all of this I feel a great danger, the danger of what might be called cosmic impiety. The concept of ‘truth’ as something dependent upon facts largely outside human control has been one of the ways in which philosophy hitherto has inculcated the necessary element of humility. When this check upon pride is removed, a further step is taken on the road towards a certain kind of madness—the intoxication of power which invaded philosophy with Fichte. I am persuaded that this intoxication is the greatest danger of our time, and that any philosophy which, however unintentionally, contributes to it is increasing the danger of vast social disaster.

Idea for Impact: People with even the smallest amount of authority can and will find ways to abuse it

People can become corrupt with power, fame, wealth, and influence, and, as I’ve written previously, they regularly get away with it. The solution, I believe, is to subject our elites (and the sycophantic supporters who are disposed to collude in self-interest) to as many restrictions, supervisions, and checks and balances as possible, and scrutinize them closely so as to spot hubristic traits and symptoms of the abuse of power.

The Cost of Leadership Incivility

January 31, 2017 By Nagesh Belludi Leave a Comment

Steve Jobs’ Misguided Advice for Being a Good CEO: “Throw Tantrums!”

Indra Nooyi got Advice from Steve Jobs: Throw Tantrums

When Indra Nooyi became CEO of PepsiCo in 2006, she met with Steve Jobs, the famously driven but short-tempered and ruthless leader of Apple. One advice Jobs had for Nooyi on being a good leader: “throw tantrums.”

During this 2016 interview at the Stanford Business School (YouTube video), Nooyi acknowledged Job’s advice as “a valuable lesson.” She elaborated that Jobs advised, “don’t be too nice … when you really don’t get what you want and you really believe that’s the right thing for the company, it’s OK to throw a temper tantrum. Throw things around. People will talk about it, and they’ll know it’s important for you.”

During another 2016 interview, at the New York Times’ DealBook Conference (YouTube video), Nooyi recalled Jobs advise again. “If you really feel strongly about something—if you don’t like something people are doing—throw a temper tantrum. Throw things around, because people have got to know that you feel strongly about it.” Though Nooyi hasn’t gone as far as to throw things around, she disclosed, “I’m beginning to use certain words a little bit more freely and I am screaming a bit more, pounding the table … which is really not the way I was … it is effective. It shows the passion that I have for what I’m doing.”

No Need to Ape the Style of the Icon-of-The-Moment

Leadership Throw Tantrums People will go to extraordinary lengths for causes they believe in. Nonetheless, this advice of throwing tantrums and using “certain words a little bit more freely” to express passion is abhorrently misguided, even if it worked for Steve Jobs and Indra Nooyi!

The ultimate impact of a leader hinges on his/her enthusiasm to make the organization’s endeavors personal, to engage others openly, and to draw attention to successes as they emerge. For that reason, Nooyi’s anecdote is demonstrative of Jobs’ passion for building great products.

My primary protestation relates to the reality that leaders model the behavior they want in their organizations. Admissibly, there may be a time and a place to throw temper tantrums at Apple, PepsiCo, or at your organization. However, unchecked and unhindered outbursts of passion, and cursing and incivility are certainly counterproductive.

Steve Jobs could throw temper tantrums because he could! As I have written in previous articles, brilliant men and women can get away with fanatical pride, temper, abuse, and other disruptive behaviors because their spectacular success can and does cover many of their sins, even in the eyes of those at the receiving end of their crudeness.

Aggressive—and successful—managers and leaders can pressurize, scream, intimidate, and even terrorize their employees. They vindicate that their offensive behavior works because they “deliver the numbers.” Others rationalize their behavior by exclaiming, “Yeah, he’s tough on his people, but judge his abrasiveness in the context of everything he’s achieved.”

The Leader Sets the Tone for Workplace Culture

Workplace incivility can take many subtle forms and it is often provoked by thoughtlessness more willingly than by actual malice. A leader’s behavior tells employees what counts—and what’s rewarded and what’s punished. Leaders are role models. Therefore, others pay attention to everything they say and every move they make.

The tone at the top is the foundation upon which the culture of an organization is built. A leader is the face of an organization and the figurehead to whom employees ultimately look for vision, guidance, and leadership. When leaders throw temper tantrums, swear, or engage in appalling behavior, the message they convey within their organizations is that such behavior is acceptable.

The human brain is wired to learn by imitation. For instance, a child is wired to mimic the behaviors of higher status individuals like parents and teachers. Similarly, adults emulate the behaviors of those they deem of higher status—employees look at their boss to determine how to behave in the organization and what it takes to be promoted. In competitive work environments of the modern day, when employees see that those who have climbed the corporate ladder tolerate or embrace uncivil behavior, they’re likely to follow suit.

Postscript: Don’t blatantly imitate a hero. Those of you who worship Steve Jobs had better perceive his operative style as an anomaly rather than as a model of leadership worth imitating. Simply lifting his methods from anecdotes such as Indra Nooyi’s and the Walter Isaacson biography and imposing them on your employees will not necessarily yield Jobs-like results. As I’ve written previously, the career advice that works for the superstars is not necessarily what will work for most ordinary folks. So, don’t be misled by their “it worked for me” advice.

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