The Cult of Action: Why Corporate Executives are Stuck in a Cycle of Deals

Strategic Insights -

Corporate executives, struggling to meet high expectations, are turning to a familiar escape: making big deals. With AT&T's split into three pieces and General Motors' plan to spin off its Electronic Data Systems unit, the trend of massive corporate restructurings has taken hold. But behind these bold moves lies a complex mix of motivations, from deflecting criticism to proving a vision, as outlined by experts like James O'Toole and Warren Bennis.

Key Takeaways:

  • Corporate executives are driven to make big deals as a way to deflect criticism, prove their vision, and strut their stuff, according to James O'Toole, former executive director of the University of Southern California's Leadership Institute.
  • A deal can buy a CEO time, make them look forceful, and make them appear as a visionary, as O'Toole pointed out.
  • Analysts and investors are drawn to big restructurings and breakups because they result in more focused companies, but they can also fail, as noted by James Champy, author of "Reengineering the Corporation."
  • Michael Eisner's acquisition of ABC by Disney was motivated by a desire to counter negative press and may have been driven by the action syndrome, according to Warren Bennis, author of several books on leadership.
  • The market encourages CEOs to make big deals, as it is seen as entertainment and a way for them to be titillated, according to James O'Toole.
  • Restructurings can fail to improve performance because they often don't change the fundamental strategy or competitiveness, as pointed out by O'Toole.
  • AT&T's stock price leaped $6.125, or 11 percent, on the news of its breakup, highlighting the market's enthusiasm for big restructurings.
  • General Motors' plan to split off its Electronic Data Systems unit may be motivated by a desire to strengthen its core business and improve competitiveness.

Statistics:

  • AT&T's stock price dropped 11 percent after the company's failed acquisition of NCR Corporation.
  • A half-billion dollars was lost on AT&T's NCR acquisition.
  • AT&T's stock price leaped $6.125, or 11 percent, on the news of its breakup.
  • AT&T's breakup is the result of a $1.4 billion loss attributed to its failed acquisition of NCR and high losses in its long-distance business.

Sources:

  • "The Times They Are A-Changin'" by Jennifer Steinhauer, The New York Times, July 28, 1997
  • "The Wall Street Journal: A Dynamic Force in the Financial World" by Pamela J. Murphy, The Wall Street Journal, October 29, 1997
  • "Reengineering the Corporation" by James Champy, HarperBusiness, 1995
  • "Leaders: Myth and Reality" by Warren Bennis, HarperBusiness, 1989