TIMES CHANGE—PEOPLE DON’T

On December 21, 1977, President Carter overturned a Civil Aeronautics Board ruling from October that had awarded the Dallas-to-London route to Pan Am, instead giving the route to Braniff. The Pan Am chairman, William Seawell, was outraged by the decision, which he saw as the result of political pressure brought to bear on the president by the Texas congressional delegation. During a party at about this time in the home of Averell Harriman, William Coleman, a former secretary of transportation and a Pan Am board member, took aside Berl Bernhard, a 48-year-old Washington lawyer active in politics, and asked him if his firm would be interested in representing Pan Am. Further discussions were held, and on January 1, 1978, Pan Am “officially switched its Washington legal account from the firm of Jones, Day, Reavis & Pogue to the firm of Verner, Liipfert, Bernhard & McPherson.”² At the time of the switch, Pan Am was the largest client of the Washington office of Jones, Day, in 1977 paying the firm $966,275 in fees out of total revenues of around $10 million.³

The loss of Pan Am meant that the head of the Washington office, Welch Pogue, was no longer the biggest income producer in the firm. There was more frequent talk about choosing Pogue’s successor, as Pogue was in his seventies at the time. Welch Pogue was a gentleman, and he believed in a gentlemanly view of the practice of law. He had been chairman of the Civil Aeronautics Board in the early 1940s before leaving to go into private practice, founding a firm called Pogue and Neal. In 1967 that firm had merged with the small Washington office of Jones, Day, and the new, larger firm had been created. In 1978, Jones, Day was the sixth-largest law firm in the country, with headquarters in Cleveland and of fices in Los Angeles as well as in Washington. Pogue did not ordinarily lobby on Capitol Hill. “He did not peddle influence. It was his belief that that kind of work—political work—inevitably led to a lessening of a lawyer’s respect in the community.”⁴

The conflict that ensued over the succession in the Washington office was a major factor in the split of that office, which was discussed in Chapter 15. Pogue was forced out as managing partner, replaced by an elected executive committee in the months just prior to the split. In spite of the genuine respect and affection many of the firm’s attorneys felt for Pogue, he had lost a major base of his power in losing the Pan Am account. Moreover, his loss of that account reflected something more fundamental—the practice of law in Washington had changed, and Welch Pogue hadn’t. Pogue and the Cleveland office of Jones, Day had a single-minded devotion to a few large clients, a business based on long-standing relationships. In Washington, things now worked differently:

The way law was practiced in Washington had evolved, but Pogue still clung to his old ideas about legal work. One of the important ways in which power is lost is just this—as environments and problems change, they require new approaches, new skills, and new relationships. Although individuals may have flexibility, and some obviously have more than others, it is nevertheless true that people in general tend to resist innovation. We learn how to do things a certain way, grow committed to our choices and our actions, become trapped by our particular form of expertise and by our particular networks of contacts and friendships, and in short, are limited in our ability to even recognize the need for change, let alone to accomplish it. Power is lost, then, because circumstances are often more changeable than we are.

Fiorello LaGuardia served three terms as mayor of New York City. During his tenure, he cleaned up one of the most corrupt cities in America, built vast public works, and put in place social services and programs that left New York the envy of many cities in the country. He had taken what was thought to be an ungovernable city, a city choking from an absence of adequate public services, and had made it a model of urban reform. By the mid-1940s, however, LaGuardia was out of favor. He declined to run for a fourth term, but polls showed him running far behind two other candidates. It is doubtful he could have won, even if he had run. What had happened? Times had changed, and the LaGuardia style and perspective were now no longer appropriate:

Lyndon Johnson also lost power in large measure because he did not change his approach or style as the environment changed around him. Mired in the Vietnam War, he announced in the spring of 1968 that he would not seek to run for president that year. His problem, however, was more than the war and his inability to extricate the United States from a set of commitments that made little sense from a foreign policy perspective. Johnson had built his career on making private, secret deals, on telling one thing to one group, and another thing to another, on getting things done surreptitiously. But the 1960s ushered in the age of television news. The war was on America’s televisions every night, and it was difficult to keep the real progress of the war far from the American public. Johnson had obtained congressional approval for the escalation of the war with the Gulf of Tonkin Resolution, so named because of an incident in the waters off Vietnam in which North Vietnamese boats ostensibly attacked U.S. warships, escalating the conflict. In subsequent hearings on the incident, the evidence seemed to indicate that the event was largely fabricated to provoke the U.S. Congress into taking the action that Johnson wanted. Johnson had prevailed on his friend, Senator William Fulbright from Arkansas, not to hold real hearings on the resolution, and to push it through the Senate with only two dissenting votes. Subsequently, Fulbright discovered that he had been deceived, and became one of the major leaders of the opposition to the war.

In this and other episodes, the issue was not just the war, but Johnson’s credibility. A political style that had worked wonderfully in the days of backroom politics and private arrangements served Johnson poorly when the task became convincing the American people, through the medium of television, of his sincerity and trustworthiness. And why should Johnson have done anything differently? He had risen from the hill country of Texas to the presidency using exactly the same behaviors, the same approach, that would now cause him to lose credibility, allies, and power. He had even won on the Tonkin Resolution itself, but the short-term victory had been purchased at a terrific long-term cost.

To avoid losing power we need to be sensitive to sometimes subtle changes in the environment, and to understand how a particular style, a particular set of activities, and a particular approach are effective because they fit the customs and concerns of a specific era. We also need the flexibility to adjust our behavior to accommodate the new reality, even if this means abandoning well-worn habits. People in power are seldom challenged or given bad news, and even when challenged, they have a tendency to reject the discrepant information. Having developed particular skill at one way of doing things or thinking about problems, they are not always skilled with alternative approaches. It is no wonder, then, that changing circumstances often produce, with some lag, a dynamic that causes those in power to lose that power.

EASY COME, EASY GO

People who arrive at powerful positions without working their way up, without experience in acquiring and holding onto power, often lose power simply because they lack insight about its dynamics. Although it may seem a stroke of good fortune to be installed in a high-level, powerful position without having to struggle to reach it, the good fortune is occasionally short-lived. In working your way into a job, you build networks of relations and gain a lot of specific institutional knowledge that an outsider would lack. This phenomenon helps us understand why the entrepreneurs who start organizations are often displaced from power as the organizations grow and develop. Beginning the organization, they started at the top, and often lack sensitivity to the nuances of power relationships that pose a threat to them later.

In the fall of 1967, Semon E. (Bunkie) Knudsen, head of General Motors’ nonauto and overseas operations, lost to Edward Cole in the competition to become president of the company. Although a high-level executive and a multimillionaire, Knudsen was disappointed at being passed over for the top job, and he let his feelings be known. Henry Ford, working largely in secret and behind the scenes, met with Knudsen and offered him the job of president of Ford Motor Company, which Knudsen assumed in February of 1968. Knudsen, whose father had been fired from Ford in 1921 before taking over the Chevrolet division at GM and triumphing over Ford in the automobile market, had worked at GM for some 29 years. As a visible, high-level executive with historical as well as personal ties to the automobile industry, he was, in many ways, a trophy executive for Ford.

Knudsen’s abrupt firing 19 months later occurred with little public explanation. The evidence indicates, however, that Knudsen had two problems: 1) he ran the company with a strong hand, bothering both Ford and other high-level executives, and 2) he was quite unsuccessful in managing his political relationships with Lee Iacocca and other Ford executives who reported to him. Knudsen came in as an outsider to the organization, and he had little knowledge of the established power centers, virtual fiefdoms, which were jealously guarded by the executives to whom they belonged. Moreover, the Ford executives, although in some sense rivals with each other for power, were nevertheless bound together by long associations and working relationships. Knudsen, as an outsider, was an easy target.

From all the descriptions of General Motors, it is an organization in which hierarchy matters a great deal, and orderly succession and planning is the byword. Ford was much more tumultuous, much less likely to have planned, orderly executive successions, and much more political. Knudsen, with the title of president, thought he had the formal authority that went with that title. In major conflicts over styling with Iacocca, the person responsible for the Mustang and the Maverick, Knudsen took on a man who belonged to the board of directors and who had the advantage over him in the area of conflict.

And, we might ask—why was he hired by Ford in the first place? To take a swipe at GM? To show GM that Ford could hire one of their senior executives? To redress a historical error—to hire from GM the son of the man who had been forced out of Ford and had helped build GM? To the extent any of these explanations are accurate, Ford’s objectives were largely achieved by the act of hiring Knudsen. After that, he was on his own, and would have to make his own way through the corporate minefields. It is not clear Knudsen even understood this, nor did he have the ties and experience that would give him power, beyond his title, in the organization.

Why would a 31-year-old justice department lawyer be named counsel to the president, and be given major responsibility for issues of profound sensitivity, including actually running the Watergate cover-up? In other words, what made John Dean such an attractive candidate to the Nixon White House? Possibly it was his very lack of experience and of political contacts. He depended for his job on the men who hired him, Haldeman and Erlichman, and thus, they could certainly count on his subservience and his loyalty. Dean’s lack of an independent power base, his tremendous awe of and dependence on Nixon and the White House staff, made it difficult for him to resist being drawn into a lot of illegal activities, for which he ultimately received a criminal conviction and served time in jail. He didn’t work his way up through the staff, or even through the Washington political establishment. This left him without allies or supporters to take care of him in a highly politicized and difficult working environment.

In earlier chapters we saw how Steve Jobs, because of his position as founder of Apple, felt as though he did not have to build alliances with board members or even his senior management. This pattern is quite common among founders of firms, particularly the technological stars, who are often removed as the firm develops. Some observers have attributed this to the need for different skills and capabilities as the firm develops. They argue that in the beginning, you need a product, which often entails some technical breakthrough. Later on, financing, marketing, and general management skills become more critical. There is clearly an evolution in terms of the competencies required as organizations develop, but my view is that the real problem with the entrepreneur is the failure to understand the importance of developing power bases within the organization. It is this, rather than the change in business issues, that seems to explain why some entrepreneurs survive and others lose their jobs as their firms develop.

The lesson here is that first of all, if someone offers you a position of more prestige or power than you thought you had any right to expect, you should ask what their motives are, and what the pitfalls of the situation are. Sometimes we are brought in, without a power base of relationships or organization-specific knowledge, to serve an agenda. It behooves us to be aware of what that agenda is. Second, one should never assume that the formal position, be it founder, president, or White House counsel, is sufficient to maintain power over a protracted period of time. Power has many sources, and position, as we have seen, is only one. Those who plan for long-term survival are quick to use their position to build other sources of power, and never believe that the position itself gives them more security than it really does.

PRIDE, PRIVILEGE, AND PATIENCE

Power is lost because changed circumstances render previous skills or networks obsolete and because people may acquire positions without learning enough about power dynamics in their organization. Power is also lost because once in a position of power, it is sometimes irresistibly tempting for us to reap the benefits of our position immediately. We sometimes let power go to our heads, forgetting that authority is always the consequence of a relationship between those with power and those who grant that power. Pride, the seizure of privilege, and the lack of patience occasionally combine to cause the downfall of those in power.

In 1990, Larry Horner was ousted as chairman of KPMG Peat Marwick, one of the largest accounting firms in the world. His replacement, Jon C. Madonna, had little international experience, even though Peat Marwick’s international business is an important part of its operations and a major source of future growth. Why was Horner ousted? His pride and his pursuit of privilege play a large role in the explanation. Horner made $1.2 million in his last year as chairman, more than 10 times what the lowest-level Peat Marwick partner made in that year, and indeed, almost 10 times the earnings that the average partner in the firm earned in 1989. The firm granted him a $1 million loan at prime plus one percentage point to help him purchase a $2 million apartment in New York when he moved there from California in 1984 to become chairman. Whenever he travelled on business, the firm paid for a chauffeur-driven gray Cadillac. And, in 1987, the partners had agreed to a change that permitted retiring Peat partners to receive up to 40% of their pay with the maximum payment no longer capped at $200,000.⁸

But the privileges, though lavish, were not the sole problem. Peat Marwick has had a history of deposing its chairmen, and a strong populist streak runs through the firm. Horner had added three vice chairmen to the nine already in place, so there were now 12 well-paid vice chairmen in the firm. Of the 1,850 Peat partners at the time of the election for chairman, some 751 had become partners in just the past six years.⁹ This tended to increase populist sentiment in the firm. There were many in the firm not likely to pay deference to seniority, since they had little of it themselves. Horner named a task force to study the firm’s governance structure, but he apparently packed the committee, which wound up recommending no change. And, instead of picking Madonna, the person who eventually succeeded him, as his running mate in the partnership election, Horner chose K. Dane Booksher, “who seemed far less promising and certainly not as charismatic, or so the partners said.”¹⁰ In spite of being urged by partners around the country to choose a different running mate, Horner stubbornly refused, and at the last minute, pulled out of the race for chairman when it was quite clear he would not be elected. Horner, in an organization with an elected chairman, had done little to cater to his constituents’ feelings. It was difficult for him, and understandably so, to let partners, many of whom were quite young, force him to choose a running mate that was not his first choice, and to compel a reorganization he did not agree with. He was the chairman of the firm, he had done great things for the organization, and he was reluctant to take actions that symbolically showed his dependence on his partners. This sense of pride was costly in his quest to maintain power.

To be proud is to think that you are almost invariably right, and to fail to bend to the needs of others. It is to set yourself above and apart from others, and thus to forfeit their support. It is a way of behaving that leaves you vulnerable to attack, as Robert Moses discovered near the end of his career. The undoing of Robert Moses began with an incident concerning the building of a parking lot for a restaurant, the Tavern-on-the-Green, in Central Park in New York City, in 1956. The restaurant was owned by Arnold Schleiffer, under a lease from the city that provided that he pay 5% of his gross income to the city. The restaurant charged high prices and was in an excellent location. Moreover, Schleiffer’s lease provided that he could repair and renovate the restaurant, and deduct the costs of these improvements from his rent payments. In a four-year period, the restaurant had collected $1,786,000, but after offsetting costs of improvements, had paid the city only $9,000, less than half of 1%.¹¹ The arrangement was typical with Moses’s favored concessionaires, as it enabled him to partly bypass the cumbersome city budgeting machinery for capital improvements and to circumvent other budgetary restrictions. The concessionaires knew that they owed Moses handsomely for their profits, and as a consequence, they were more than willing to throw huge parties, lavish dinners and receptions, and in general, to spend money in ways that Moses directed.

A group of mothers, including some very prominent and rich mothers, learned of the plans to build a parking lot and thereby destroy a small glen, by finding some plans left lying around when a group of workers went for lunch. The mothers immediately began organizing a protest. Although this protest would turn out to be different, Moses, inured to park protests and accustomed to getting his way, was both insensitive and imprudent in his handling of the situation:

But this protest was to be different. The opponents were wealthy and sophisticated, and they knew how to use the media. The 1950s were not the 1930s and 1940S—times had changed, and along with them, people’s attitudes toward large-scale public construction projects that covered over open space and displaced people. And this was an issue not about public housing, or about building a road, but rather, about building a parking lot, for an expensive private restaurant, in Central Park. Moses was going to cut down trees. And the opponents, skilled in staging a protest, made sure that mothers with baby carriages were there to be photographed by the news media. The newspapers called it the Battle for Central Park.

Moses would win out, but only temporarily. He had a fence built in the middle of the night, so that when construction started on April 24, the mothers and their children could not get close to the construction site. He controlled police, construction crews, and contractors who knew that they owed him their livelihood. The construction began under the cover of darkness, as had many of his other improvements, but this time it served to provoke an angry and outraged reaction from the media and even from his supporters.

Robert Moses had won so many battles, fought so many opponents over his 30 years in public life, that he had become disdainful of opposition, and overconfident of his own capabilities. He left for a 24-day trip to Spain with his wife even as the controversy was raging. Of course, the cost to him was not just in the loss of this battle. He eventually retreated, and built a playground rather than a parking lot. The cost was in his reputation, a reputation as a public servant, and a reputation as someone who was invincible, and therefore one to avoid in a fight:

After that, it was never the same for Robert Moses, who had let his pride and his arrogance, his belief in his own powers, cause him to disdain his opponents. Never underestimate your opponents. If you prepare too carefully, and take too many precautions, you may waste some effort. But if you underestimate what you are up against, you can lose, and losing even one battle may signal the decline of your power.

Power can also be lost through a lack of patience—through trying to do too much, too soon, and being too greedy in seizing the spoils of a recent victory. This was essentially what happened to Lew Glucksman, after he ousted Pete Peterson from Lehman Brothers. Glucksman obtained full control of the firm on July 26, 1983. Beginning in July, the operating committee, with Glucksman in charge, began meeting to distribute bonuses and shares of the firm’s stock. Glucksman had long resented what he considered the disproportionate share of the profits that went to the investment banking side of Lehman. As a person from sales and trading, he thought that side of the house, which had recently brought in income at a greater rate than banking, deserved more of the profits. And now, as CEO, he moved quickly—perhaps too quickly—to put his friends in power and to distribute rewards to himself and his allies.

By the fall of 1983, Glucksman had placed his own person at the head of most of the firm’s 12 departments. This included making some strange management changes. Richard Fuld, Jr., who had been running the fixed income division, became supervisor of both the fixed income and equities division. He was just 37 years old, and a stranger to most of the partners because he was said to be “defiantly antisocial.”¹⁵ Glucksman named Sheldon Gordon, whose career had been entirely in sales and trading, to run the investment banking division. Although he delayed formally naming Robert Rubin president and his righthand man, he did begin the process of moving him into the highest management ranks by putting him on the seven-person operating committee that ran the day-to-day affairs of the firm. Rubin was also not widely liked by the other partners, for although he was known as a brilliant man, he was also considered to be prickly and private.

Glucksman brought in two outside partners, giving them a substantial number of shares, without the board’s full knowledge or consent. And he was particularly greedy with respect to bonuses and shares for himself and his friends. At the board meeting on September 21, barely two months after taking over, Glucksman’s plans for the firm and its profits were clear:

The board went along, but many partners were angry. In a partnership, trust is everything, and Glucksman had, in less than three months, destroyed the trust of the investment banking side of the house and even dismayed some of his own allies. By the end of the year, six partners had announced their intention to leave the firm, and with their departure would go their capital, so desperately needed in the increasingly competitive 1980s securities business. The threat over the flight of capital, and the capital question, would finally cause the firm to be sold to American Express. But it was Glucksman’s hasty actions that discomfited the partnership and ultimately led both to the sale of the firm and to Glucksman’s departure. He had worked hard to climb up the ladder at Lehman, and had struggled to get rid of his co-CEO, Peterson. Once in power, he had rushed to enjoy the fruits of his victory, and as a consequence the firm he had taken over was sold out from under him. By April 1984, Lehman had ceased being a private partnership, and was now part of Shearson and American Express.

The lessons from Glucksman’s loss of power were summed up by a former partner: “If you were Machiavelli . . . you would have been modest in your own bonus and stock. You would have shored up your weaknesses in banking.”¹⁷ Organizations entail interdependence. Regardless of your power or your position, your dependence on others remains. How tempting it is to gloat or to revel in the power you have worked so hard to obtain, and to receive some payoff from your efforts. But, seeking too many benefits too early will invariably undermine the foundations of your power.

TIME PASSES

According to Smith’s biography of William Paley of CBS, as he grew older and more infirm, Paley asked, “Why do I have to die?”¹⁸ Armand Hammer, of Occidental Petroleum, died at the age off 92 still holding his position as CEO. Robert Moses finally lost power when he threatened to resign from his positions and Governor Nelson Rockefeller took him up on the threat. Moses was annoyed that he had to ask Rockefeller to sign a special waiver exempting him from the state’s mandatory retirement laws, because he was in his 70s at the time. Welch Pogue was still the managing partner of the Washington office of Jones, Day at the age of 79. Aging is inevitable, and thus at its limit, it is inevitable that regardless of our wealth, or fame, or brilliance, we will finally lose power, if not from mandatory retirement, which is now against the law for many positions, then from infirmity and death.

A discussion of the psychology of letting go is beyond the scope of this book, but it is easy to see why, having worked hard to attain a position of power and the perquisites that come with it, one is not likely to go quietly. There are a few exceptions, however. Arjay Miller, former president of Ford and dean of Stanford’s business school, used to quote the advice of another former Stanford dean and corporate executive, Ernie Arbuckle, to the effect that after ten years in a position, it was time to move on. Arbuckle was a senior executive at Wells Fargo, dean at Stanford, and then chairman of Saga Foods for a time. Although we might applaud such sentiments, it is not wise to count on our leaders having them.

Therefore, perhaps the best way to deal with losing power is to institutionalize the process. By fixing the terms of office, by fixing mandatory replacement mechanisms, in other words, by regularizing succession, we reduce the stigma of losing power and make it part of the normal course of events. As such, the trauma is less, both for the individuals involved and for their organizations. Eldon Crowell, the government contracts lawyer who precipitated the split at Jones, Day, and who founded Crowell and Moring, a firm that now has more than 150 attorneys, learned something from Welch Pogue. The new firm is governed by an elected executive committee, with the stipulation that no person can serve more than three successive one-year terms without going off the governing body for at least a year. Did Crowell, the named partner and co-founder, follow this rule? Absolutely. And in forcing himself to share power, he built a healthier organization, which was less dependent on a single person, and also a somewhat healthier life for himself.

What we want to learn, then, is both how to avoid losing power prematurely and how to leave our positions gracefully. Understanding our role in the system by which organizations operate and are governed will help us to achieve both of these goals.