newjerseynewsroom.com

BY WARREN BOROSON

NEWJERSEYNEWSROOM.COM

BOROSON ON MONEY

I keep driving by Blockbuster stores that are going out of business.

And I keep wondering: Why didn’t the people who ran Blockbusters — very well paid, I presume, intelligent, experienced — start a mail-in-DVD service earlier than they did? And a streaming service the way Netflix did?

Why do the people who run businesses so often screw up so egregiously?

Other recent examples: Kodak, Polaroid, General Motors and so many other auto companies that declined to manufacture smaller cars. And newspapers that all but ignored the Internet revolution. Typewriter manufacturers that didn’t move over into computers — like the one I’m using now to write this article.

The March Atlantic has an article by Megan McArdle called “Why Companies Fail.” Her explanations: People resist change. Management and workers “wait too long before they act, and even when they do take action, it’s often inadequate.” Firms don’t change “because inertia is in their DNA.”

My own comments:

• The people who reach the top of companies, so-called captains of industry, tend to be colorless, plodding types. They don’t stir things up, they don’t threaten their co-workers with innovations. And once they have assumed the reins of power, they want to hold on by not taking chances.
• Some managers of mutual funds keep their jobs year after year by doing just adequately. They are “closet-indexers” — they run portfolios that roughly track indexes, so their investment performances are never that bad. (Or especially good.) Morningstar gives them three stars. Lucille Ball, remember her? An associate once urged her to make dramatic changes in her TV program, “I Love Lucy.” Her reply: “Don’t screw around with success.” “I Love Lucy” soon foundered and sank.
• Captains of industry live charmed lives. They’re rich, they take long lunches, they vacation in the best places, they enjoy all the modern luxuries, they meet all sorts of celebrities and they’re flattered and complimented all day long. Even if they do a lousy job, they receive incredibly generous financial rewards. (Nice work if you can get it.) Warren Buffett — one captain of industry whom I admire — has confessed that he dances his way to work.
• They may not hire really good people. They don’t want the competition. The saying is: “A people hire A people, B people hire C people.” An editor I knew once asked his second in command: “What’s your ambition?” Answer: “To have your job.” The second is command was quickly replaced.
• They don’t pay enough attention to criticism. Another editor I worked for was dubious when people told him how boring our magazine was. We needed fresh story ideas. The editor’s response was to make all the articles shorter. “That way,” one staffer scoffed, “readers will have finished reading the articles before noticing how boring they were.”
• Captains of industry are usually old. Young people don’t usually rise to the top. I have nothing against old people — I happen to be one myself — but our energy levels tend to be limited, and some of us are averse to really hard work. I once told the editor of another magazine where I worked about a shrewd idea I had for doing something. His memorable reply: “Let’s do it the way we did it at Collier’s.” (Collier’s was a very, very old magazine where he had once worked.) I was in my 20s when I worked at that magazine; the editors were in their 50s and 60s. And I knew in my bones: I could do a better job running this magazine than they could.
• Captains of industry — leaders in general — tend to focus on the short-term, on daily problems and challenges. They don’t think long-term. Some of them, the smart ones, hire imaginative people to predict the future and suggest innovations that may be needed. You think Blockbuster executives did that?