HUBRIS: The fall of the mighty Lopez family

This was written by Tony Lopez of the Manila Times.”The loss by the Lopezes of their stranglehold in Meralco presents a veritable case study on how a mighty family could lose their crown jewel, the symbol of unrivalled power and influence.

Overborrowing, overexpansion, and overarching ambition in the mid-1990s and loss of focus in their core businesses by the early 21st century finally undid the Lopez group by 2008, forcing it to sell many of their prized assets—the Manila North Tollways, the Subic-Tipo High­­way, and the awesome May­nilad Water concession which never became profitable. Today, the Lopez group is a shadow of its own self. It bought PNOC-EDC at a horrendous overprice—P58 billion, three times the market price.

Jim Collins, of the Good to Great book fame has come out with a new book, How the Mighty Fall (about P1,000 at Fullybooked). Though rather thin, the book is a good reading for it presents lessons on how a company becomes good, then great, only to be gone later.

The management guru identifies the causes of corporate disaster and cites five stages a company undergoes before it unravels.

Stage 1: hubris born of success

This is when people become arrogant, regard success virtually as an entitlement, and lose sight of the true underlying factors that created success in the first place.

When the rhetoric shifts from “We’re successful because we do these specific things” to “We’re successful because we understand why we do these specific things and under what conditions they would no longer work,” decline very likely follows. Luck and chance play a role in many successful businesses. Failure to acknowledge this is hubris or pride. Remember the Greek gods? They fall because of hubris.

Stage 2: undisciplined pursuit of more

More scale, more growth, more acclaim, more of whatever those in power see as “success.” Companies stray from the disciplined creativity that led them to greatness in the first place. They make undisciplined leaps into areas where they cannot be great or growing faster than they can achieve with excellence—or both.

When an organization grows beyond its ability to fill its key seats with the right people, it has set itself up for a fall. Although complacency and resistance to change remain dangers to any successful enterprise, overreaching better captures how the mighty fall.

Discontinuous leaps into areas in which you have no burning passion is undisciplined. Taking action inconsistent with your core values is undisciplined. Investing heavily in new arenas where you cannot attain distinctive capability, better than your competitors, is undisciplined. Launching headlong into activities that do not fit with your economic or resource engine is undisciplined. Addiction to scale is undisciplined.

To use the organization primarily as a vehicle to increase your own personal success—more wealth, more fame, more power—at the expense of its long-term success is undisciplined. To compromise your values or lose sight of your core purpose in pursuit of growth and expansion is undisciplined.

Stage 3: denial of risk and peril

Leaders discount negative data, amplify positive data, and put a positive spin on ambiguous data. Those in power start to blame external factors for setbacks rather than accept responsibility. The vigorous, fact-based dialogue that characterizes high-performance teams dwindles or disappears altogether. When those in power begin to imperil the enterprise by taking outsize risks and acting in a way that denies the consequences of those risks, they are headed straight to Stage 4.

Stage 4: grasping for salvation

Common “saviors” include a charismatic visionary leader, a bold but untested strategy, a radical transformation, a dramatic cultural revolution, a hoped-for blockbuster product, a “game-changing” acquisition, or any number of other silver-bullet solutions. Initial results from taking dramatic action may appear positive, but they do not last.

Stage 5: capitulation to irrelevance or death

Accumulated setbacks and expensive false starts erode financial strength and individual spirit to such an extent that leaders abandon all hope of building a great future. In some cases the company’s leader just sells out; in other cases the institution atrophies into utter insignificance; and in the most extreme cases the enterprise simply dies outright.

The point of the struggle is not just to survive, but to build an enterprise that makes such a distinctive impact on the world it touches (and does so with such superior performance) that it would leave a gaping hole—a hole that could not be easily filled by any other institution—if it ceased to exist. To accomplish this requires leaders who retain faith that they can find a way to prevail in pursuit of a cause larger than mere survival (and larger than themselves) while also maintaining the stoic will needed to take whatever actions must be taken, however excruciating, for the sake of that cause.