"Power tends to corrupt, and absolute power corrupts absolutely," said Lord Acton, an English historian. Nothing can be closer to truth than the way powerful CEOs behave. These are the men managing big (and supposedly respectable) companies.
They suffer from what psychologists call the 'paradox of power'. The very traits that helped these leaders get control in the first place disappear once they rise to power. They become impulsive, reckless and rude.
Take the case of these two 'big' Indian companies. When times were good, they resorted to financial engineering to prop their growth numbers. Investors thought these were great companies and could do no wrong. Ironically, even the top men in these companies thought the same - they could do no wrong! They spent big money in making wrong acquisitions, and went more aggressive than their financial strength would have supported.
They had wind in their sails, and thought that they connected very well with their stakeholders! After all, whatever decisions they took were applauded by the markets.
Well, those were the heydays of the pre-crisis period. After the crisis struck, not only did these companies lose business big time, their balance sheets started bleeding profusely. The wind was gone, the storm was here.
And the people who paid the biggest price were the minority investors. Those who were managing these big companies and had made those big bad decisions when the times were good, were still doing well!
Well, we are talking about companies like Suzlon and Reliance Communications. These still are widely-known companies in their respective businesses. But then, investors might remember them for their reckless pursuit of growth rather than any shareholder friendliness. These are clear cases of how a management's overconfidence can hurt shareholder returns, and hurt big time!
12 years ago
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