There have been two debacles in the business world in the last 30 days. The charismatic CEO of WeWork, Adam Neumann, stepped down but only after he had pulled out $740 million of his own money. The 15,000 employees of WeWork were left stranded much like the 21,000 employees and 6,00,000 customers of Thomas Cook.
The 3 forces that killed Thomas Cook
A company formed in 1841 collapsed. Thomas Cook ceased operations while some of its flights were still up in the air.
The Thomas Cook store fronts specialised in low-cost package holidays that put beach vacations in exotic locales within the budgets of middle-income Britons. The company owned hotels and operated its own airline. Thomas Cook Airlines, a United Kingdom-based operation, had 34 planes in the fleet travelling to 82 destinations. The airlines business has created many millionaires (out of billionaires). The operational complexities make it hard to make money.
There were the usual old-world indicators of its leadership team not watching the money in the pocket. Their debts had ballooned to $2.5 billion. That is the equivalent of high credit card bills for an individual living beyond his/her means. What did the auditors and the Board miss?
The CEO, Peter Fankhauser, blamed it on external factors. He was quoted in media as saying, “There is now little doubt that the Brexit process has led many UK customers to delay their holiday plans for this summer.” There was no reference to his own inability to understand digital disruptions or consumer trends. There was no reference to the three CFOs that he brought in over the last two years. There was mention of the role of EY and PwC, the two audit firms that have been auditing the books to say that all is well.
1. Drowned by the digital tsunami: Having a website does not make the company a digital player. Thomas Cook was an analogue player. They had physical stores in prime locations and telephone assistance. They owned several hotels and airlines. When markets slow down, it chokes the business.
2. The changing consumer: The digital world thrives on crafting unique individualised experiences. A package tour, which was the format in which Thomas Cook operated, was a ‘one size fits all in the group’ model. Tech-savvy travellers do comparison shopping through various sites and pick the elements they wish to keep or give up when they travel. A weak pound made travel budgets smaller and less frequent.
3. Consumers buy experiences – not tour packages: Airbnb Experiences lets a traveller choose to go explore a destination with home-owners who curate experiences based on their knowledge of the city and the interests of the traveller. Jazz aficionados can take a tour of the Jazz bars, learn jazz, get introduced to jazz players and listen to old albums from the home-owners’ collection.
Tour packages are seasonal. Poor weather or political disturbances in a destination can kill a season.
Last but not the least is the role of the Board members of Thomas Cook. What were the independent Board members doing while all this was happening under their watch? The CEO of Thomas Cook defended the £8.3 million he has been paid since November 2014, and denied he was a “fat cat”. Some £4 million was in the form of share payments, which were now worthless as he did not cash them in before Thomas Cook went into liquidation on September 23, 2019.
He was not as smart as Adam Neumann who had taken $740 million out of WeWork days before he stepped down from the role of the CEO.
“Reality distortion” skills
The business press is full of articles about the long-haired, barefoot and visionary CEO Neumann who started WeWork in 2009. A firm was valued by “Goldman Sachs at anywhere between $60-90 billion” and by JP Morgan to be worth between “$40 and $60 billion” just weeks before its bubble burst.
Look at Travis Kalanick (erstwhile founder CEO of Uber), Elizabeth Holmes (founder CEO of Theranos) and most recently, Adam Neumann (founder CEO of WeWork). There is a common pattern that should serve as a red flag when you see this in and around you.
The charismatic CEOs have one thing in common. They are all clones of Steve Jobs in the way they dress and talk. They use hyperbolic language. Everyone is “insanely talented” and things are growing at an “amazing pace” and they are putting a “dent in the universe”.
Steve Jobs had a unique ability to convince himself and others to believe almost anything with a mix of charm, charisma, bravado, hyperbole and marketing. The objective was to prevent the listener from thinking about the challenges and believe that the task at hand was possible.
Creating a field of “reality distortion” was Steve Jobs’ strength. It helped Apple create path-breaking products. It does not take away from the fact that the line between hyperbole and lies was often blurred.
Elizabeth Holmes was a self-proclaimed fangirl of Jobs. Her privately-held company Theranos was portrayed as a “breakthrough technology company”, but subsequently infamous for its false claims to have devised blood tests that only needed very small amounts of blood. Holmes falsely claimed in 2014 that the company had annual revenues of $100 million, a thousand times more than the actual figure of $100,000.
WeWork claims to “create a world where people work to make a life — not a living”. Adam Neumann’s customised $65-million private jet was part of his narcissism. No one can compete with narcissists when it comes to formulating and selling a game-changing, pompous vision, says Tomas Chamorro-Premuzic, a personality psychologist.
Extreme leadership models
When a young couple (Adam and his spouse) paint their vision as an opportunity to build a community where the collective is prioritised over the individual, it can rebrand a realty business into an opportunity to turn a dream into reality. I suspect, his strength became his greatest enemy. He used charm to defy Math and Masayoshi Son.
Moneycontrol puts that as a warning sign for Indian start-ups which are beneficiaries of Softbank’s investments. “Paytm, Paytm Mall, Delhivery, Grofers, Policybazaar, Ola Electric, Snapdeal, Oyo, Housing.com, Hike Messenger, FirstCry, among others, are still burning cash. InMobi is probably the only company that has claimed to be profitable so far,” it says.
Psychologist Dacher Keltner describes the paradox of power in his book The Power Paradox: How We Gain and Lose Influence.
“We rise in power and make a difference in the world due to what is best about human nature, but we fall from power due to what is worst. We gain a capacity to make a difference in the world by enhancing the lives of others, but the very experience of having power and privilege leads us to behave, in our worst moments, like impulsive, out-of-control sociopaths.”
Men are almost 40 per cent more likely to be narcissists. They often become leaders. Maybe it is time to celebrate leaders who use their power to make a difference to others rather than buying more private jets and cars.
Narcissists focus on looking good themselves. They often do not grow the second line of leaders, so that there is no one who has the “stature to challenge their decisions”.
Many start-ups are as guilty of not investing in building a second rung of empowered and capable leaders.
There could well be a better choice than choosing between the two extreme leadership models that we have seen. The price is paid by the employees and common investors. This must change.
Abhijit Bhaduri helps organisations transform their leadership, talent strategies and culture to succeed in the digital world. Follow him @abhijitbhaduri