The “Great Man” Theory of Business

Originally published in the Financial Times

Historians have not documented whether Charles de Gaulle or Georges Clemenceau first pronounced that “graveyards are full of indispensable men”. While that must be so, some chief executives come close to severely testing that aphorism.

At the top of any list of such immortals would surely be Steve Jobs, for both creating Apple in the first instance and then returning triumphantly to lift it from crisis to the second most valuable company on earth, after ExxonMobil.

Of course, we don’t yet know when or whether Mr Jobs – a more respected than loved figure – will return or what his absence will mean for the world’s hottest enterprise. But what this saga reminds us is the start­ling difference that individuals can make astride giant companies.

In 28 years as a banker, I’ve seen this narrative repeatedly. In 1984, when Michael Eisner and Frank Wells arrived at a besieged Walt Disney, none of us at the company’s adviser, Morgan Stanley, would have wagered a farthing on Disney’s chances. Yet, over the ensuing 10 years, Disney stock compounded at almost 30 per cent annually. (Sometimes, it takes two to tango: following Mr Wells’s accidental death in 1994, the company again lost its bearings.)

Meanwhile, Lou Gerstner took command of IBM in 1993 and bringing in only a new finance chief (and a human resources chief who soon departed), employed hand-to-hand management combat to whip the company into shape. “The last thing this company needs is a vision,” he memorably snapped when asked what his strategy was.

Not convinced? Consider a few dyads – pairs of companies whose business similarities make easy comparison. For decades, General Motors and Ford have faced essentially identical challenges – the same constricting United Auto Workers agreements, the same oscillating petrol prices, the same competition from Asian car­makers and most recently, the same credit crisis.

By 2006, Ford was on the ropes, widely judged to be in worse shape than GM. The family scion, Bill Ford, selflessly decided to relinquish his chief executive role in favour of an industry outsider, Alan Mulally. Three years later, GM – which clung to its practice of social promotion of insiders – was bankrupt, requiring a $50bn transfusion of taxpayer funds while Ford remained solvent and needed no help from Washington. Last year, even with car sales still depressed, Ford almost certainly notched record profits.

Then there’s General Electric and Westinghouse. In April 1981, Jack Welch became chief executive of GE. At that time, GE and Westinghouse were arch rivals. While GE’s revenues were larger, both companies made light bulbs, appliances, turbines and nuclear equipment and owned television stations and credit companies. The two corporations could not have been more similar if their founders had set out to accomplish that goal.

Yet, two decades later, Westinghouse was gone and GE was among the most admired and valuable companies. In the 14 years before Westinghouse sold its industrial businesses, its stock rose 126 per cent and GE’s rose 931 per cent. Why the vast difference? GE had Welch, and Westinghouse had a revolving door of mediocre chief executives.

In business school halls, some discount Welch’s accomplishments at GE by arguing it had had a succession of great leaders and that while the chief executive may be most visible, great companies are built by great teams. That may be true, but as Welch once explained to me: “A players hire A players and B players hire B players.”

Compounding the challenge for companies such as Apple is the likelihood that the more “creative” the business (think Disney), the more of a difference one or two executives can make.

Don’t misunderstand me. Many companies are fine with competent, utterly replaceable managers at the top. And those that have an all-consuming “great man” at the top can go horribly wrong. Great men don’t always know when to leave the stage or how to nurture superstar replacements (although Welch and Gerstner did well at both).

By every measure, Sandy Weill was a brilliant entrepreneurial leader, building a small Baltimore-based commercial lender into the behemoth of Citigroup. That began to unwind in 1998 when he fired his protégé, Jamie Dimon, and ultimately turned the bank over to a loyal but far less experienced lieutenant.

We well know the consequences of that single decision: Citi nearly went bankrupt and Dimon went on to lead JPMorgan through the credit crisis without losing money in a single quarter! Once again, management mattered.

The Apple PR machine is insisting the company has a fine back-up team and will continue to excel, with or without him. That’s likely to be true, at least for the moment. Stellar Christmas earnings, a seemingly insatiable demand for the company’s sleek fleet of products, and a strong product pipeline can surely carry it during a temporary Jobs absence. But just as Apple would never have gone from near extinction little more than a decade ago to $316bn of market value today without Jobs, it’s hard to imagine it maintaining its utter domination of such a hyper-competitive space without him or his clone.