Understanding dynamics of corporate dysfunction

Published in the San Diego Union-Tribune, August 7, 2017

How did we get into this mess?

I spend a lot of time consulting with business puzzles and serving on startup boards. The other day some young entrepreneurs came in to get worked over, and I was lamenting and bemoaning a particular board mess. And one of the gentlemen asked the following, “How did it get to this?”

I was gobsmacked. Indeed, in retrospect I wanted to try to understand the dynamics of dysfunction. I am not at liberty to name names or details, but I have come to one coherent conclusion — namely that there is usually one distinct, discrete decision that the board or the management gets wrong — and from there, we are on the downhill bobsled to loss of value and litigation. This is true both of my particular puzzle, and also across multiple companies that I know about or have been part of.

Now let’s assume for the moment that I am correct and that there is always one important, critical, bet-the-company decision that comes up to the board or the management team and they whiff on it. The question becomes: Can we identify it when it comes up and can we get it right more often than not?

So I have turned to Corey Kupfer, who has written a book, “Authentic Negotiating: Clarity, Detachment and Equilibrium.”

When a company starts, everybody says that they are all in, they will do what is best for the company, the venture capitalists are funding and serving on the board and they want to empower the team, they want success. And for the next 48 hours, everybody is there for you, baby. And then things start to fall apart.

Welcome to entropy, a measure of molecular disorder within a macroscopic system, the natural logarithm of the number of configurations, multiplied by the Boltzman constant — or in layman’s terms, the fact that things will always turn south is the irreversible nature of the world.

This disorder is compounded by ego. I recently finished three negotiations on behalf of other people. In each case, I had to hammer down their egos. They wanted things that made no sense and were not in their best interests. And in one case, my client had already won the Super Bowl and didn’t realize it; he wanted to keep negotiating for the pom-poms.

I see that the hard decisions often get pushed down the road because of the lack of clarity of what is really important. Kupfer says, “you can’t let your emotions get away from you. … you’re going to lose clarity; you are going to lose your connection to the truth.” I like the idea of truth. It sits out there most of the time and is available, but often we ignore it. It is not that we are dishonest, it’s that we just don’t prepare enough in advance to see it when it is sitting at the end of the conference table. The question is both what do we really want and what can we rationally achieve?

Consider the infamous “board package” wherein the management team tries to convince the board that the ship is afloat and there are no icebergs nearby. Lots of financials, roadmaps and optimistic, forward-looking statements. OK, I get the “nearby” thing, but is there an iceberg out there around the corner? Why does management avoid the “truth” until it is too late? There is more than enough blame to go around. The VC/angel investors also don’t like to look too hard under the covers. They don’t like to perform a proctologic exam. They prefer to hope that it will all get better, rather than turn the boat. They always want a 10-fold return, but sometimes, in the end, any port in a storm is the optimum decision. When you dig into many of the acquisitions that are announced, you often find out that after all the preferences, everybody made 30 cents.

Rule No. 524:  The truth will set you free.  John 8:32

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