Charismatic Leaders = Nervous Investors
Jane is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Stock watchers should be getting very nervous these days with the relatively large number of charismatic leaders in charge of complex and rapidly changing businesses. There are at least four sources of concern.
One set relates to the leadership versus management question. Sure Facebook’s Mark Zuckerberg has the almost magical ability to influence constituencies ranging from funding sources and media to consumers and employees. But, as the saying goes, everything changes. Does Zuckerberg have equal genius for the emerging strategic and operational matters associated with being a public company, escalating expenses, and the shift from a web based to mobile accessed Internet? The charisma of Netflix’s Reed Hasting served the company well in its upward trajectory. However, as it recovers from its misguided pricing strategy and encounters more competition, Hasting might lack the ability to reset the company.
A second reason for angst is related to the tendency of charismatic leaders to develop myopia born of excess ego while simultaneously carving out an organizational culture which doesn’t push back. News Corp (NASDAQ: NWS) chief executive officer (CEO) Rupert Murdoch is known for his swashbuckling style. The company he runs was likely a sitting duck for making the kinds of decisions which generated the hacking scandal. Also it’s likely that it is his love of newspapers which is keeping that depressed segment from being sold. The question constantly asked is if the stock price would soar would he hand over leadership to the systems-savvy more buttoned down president Chase Carey.
The third set deals with succession. In essence, the question is if organizations can navigate the transition from a Zeus who throws all the right thunderbolts to a mere mortal. This kind of angst doesn’t arise at more traditionally run companies like McDonald’s (NYSE: MCD). In one year, two CEOs James Cantalupo and Charles Bell died. The company kept moving forward, in shock, but without management speed bumps. At Berkshire Hathaway (NYSE: BRK-A) maverick Warren Buffett reassured, in his annual shareholder letter, that the succession process was firmly in hand. Who, though, rests easy that the company can migrate from the unique leadership of a Buffett to anyone else.
The same succession question arose when Tim Cook took over for the late Steve Jobs at Apple (NASDAQ: AAPL). Some are still asking it. In FORBES, head of Forrester Research, George F. Colony, goes beyond that to predict that without a charismatic leader Apple will go the way of Sony.
The fourth source of nervousness is about turnarounds. Do stuck companies need a Lee Iacocca type, who came from a sales background, to create the strategy and jump start change? Experience shows that isn’t a prerequisite. Remember when IBM (NYSE: IBM) was at a bottom in the early 1990s, former management consultant Lou Gerstner reset it to compete in a marketplace with the likes of Microsoft. His tool was not personality but old-line take no prisoners management. In addition to not being required, the charismatic leader might be the constraining force as the company continues to need change. Some say that had happened at Chrysler during the last stages of Iacocca’s reign.
The investment reality is that charisma is a risk factor. Like all risks, it has to be factored into decisions about the value of the company and its potential for growth. For many startups the major risk may be not enough of it to create something new. While Facebook was playing in a sandbox of its own unique making, charisma might not have only been useful but necessary. As the company leaves the toddler stage, that kind of leadership could be prone to rule out courses of action which don’t fit with an idiosyncratic organizational culture. A real life test case of that will unfold as Facebook absorbs the way of the world of being a public company.
janegenova has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and International Business Machines. Motley Fool newsletter services recommend Apple and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.