by Peter A. Arthur-Smith, Leadership Solutions, Inc.®

“US Bankruptcy Judge, Sean Lane, on Wednesday, November 27^th

2013, approved AMR Corp’s (#2 world airline) exit from bank-

ruptcy, clearing the way for the parent of American Airlines to

finalize it s merger with US Airway Group, Inc., (#6 or 7 in the

US)” – (NOTE: The CEO of US Airlines – Doug

Parker – took the CEO spot for the merged airlines.)

  Have you noticed how many larger companies have been taken-over during the past year? It happens virtually every year and even more so during recessionary times. Recessionary times make even the biggest

enterprises ripe for the picking – big banks, big corporations and big sports franchises. Organizations that once flew high and looked untouchable, but somehow lost their way and were gobbled up another more successful or smaller venture.

There’s no doubt that within the next 10-20 years some of today’s powerhouses will be just memories; swallowed up by other emerging enterprises. Yahoo is already one of those on its way out. It all comes under the heading of creative destruction – as coined by Joseph Schumpeter nearly 100 years ago – and take-overs are often fed by one of the two parties being afflicted by in-breeding. American Airlines, in its pre-bankruptcy form, was afflicted by a command and control style of in-breeding. It was strongly disfavored by the unions, even though those same unions enjoyed dealing with market-oriented SouthWest Airlines just across town.

Once organizations reach a certain size, they develop a certain swagger. They sense they have most of the answers; that their way is the right way. There’s usually some truth to their feelings, in the near term, otherwise they wouldn’t be where they are today. However, that mentality is at the roots of in-breeding and, unless checked, will lead to the organization’s ultimate demise. American Airlines tried hard to get SouthWest Airlines kicked out of its Dallas neighborhood.

Such a phenomenon is not exclusive to larger organizations, since there are untold numbers of smaller entities with phobic executives which do not achieve their potential, either, due to in-breeding.

A short while ago, this writer was reading an article about the group Rolling Stones and their long-lived success within the music industry. Apparently their great success came down to constantly reinventing themselves: introducing new genres of music, while scores of other bands came and went. The group was never satisfied with being at the top and was constantly looking at ways to keep their performances fresh.

This is also true of those relatively few long established companies that have endured the test of time: like General Electric, Proctor and Gamble, BMW, Delta Airlines, UPS and so on. More often than not, they have regularly morphed into fresh enterprises to meet the times. That’s not to say we won’t find some in-breeding in these juggernauts, but, more than likely, less so than in those major or smaller companies which have been swallowed up by others over the years.

Again, this writer has had the opportunity to be close enough to some large and smaller companies which have been picked-off by relative upstarts. The quarry of such upstarts are hardly growing or are even beginning to falter and often seek injections of funds to keep them in business. In these days of vulture capitalists or equity funds, such financial entities are often willing to oblige. As take-overs, some of the in-breeding is treated, fresh leadership is inserted to reinvigorate them, and then they are flipped to an eager buyer. A great business to be in, if you are pretty ruthless in your decision making and you are willing to hold no in-bred prisoners.

Another recent corporate play reminded this writer of a recent in-breeding scenario, where a prominent player in its industry was picked-off by a private equity house. The equity fund observed a faltering share price as the enterprise’s momentum was flagging. It bought increasing numbers of shares within the company until it could demand board seats.

Once aboard, its representatives asked tough questions about the business model and demanded changes. When those changes didn’t come, they lobbied for a takeover by competitors, in the name of shareholder value, or for it to surrender its shares to the equity fund. In such scenarios, shareholders often take the best deal they can get and run.

    What happened inside SunOpta, American Airlines, as well as this writer’s prior example, which caused these three companies to falter and then become take-over targets? More than likely, the writing was on the wall for a few years. Larger companies can obfuscate and survive for a number of years with inadequate decision-making, legacy branding, share-price bolstering, predatory tactics, poor customer service, and unhealthy staff-people practices before events catch up with them. (Note: If you go to Dell Computer’s website –June 2016 – and see the list of customer complaints, you’ll scratch your head and wonder how a company can stay in business with such a torrent of irate customers.)

Other in-breeding factors come into play that disengages their people, too – such as:

» They jerk their staff around with self-serving salary and benefits policies – with the retort, “They should be thankful they have a job.” Over time the good people leave and they’re left with the also-rans.

»“Because we’re so busy meeting day-to-day demands, we have minimal time to offer training for our executives or people.” Before they know it, the world has passed them by.

» Some strong-headed company bosses get caught up in their own chutzpah, such that their executives feel less and less empowered. Many of those key executives are ripe for the picking by eager head-hunters and the company’s leadership talent becomes watered down with replacements.

»Many in-bred organizations increase their “command and control” over time to preserve what they have; often encouraged by their accountants and legal advisors. Consequently, as the squeeze takes hold, people feel hampered as their room for initiative wanes. So they either buckle down and comply or leave. Again, the venture’s human talent is undermined.

» Often, when competent executives or other level leaders leave, due to their concern at  in-breeding behaviors, they are replaced by less talented and more compliant managers – in some cases out of expedience. And so the venture’s leadership loses competence, strength and capability.

» So often, in-bred companies prefer to do everything themselves, with minimal input from outsiders. While many in-house experts can be quite capable, they don’t always stack up against outside experts who have to live by their competence-wits or “die.” (Note: It is well known within the legal profession that outside lawyers, more often than not, run rings around most city prosecutors. That’s why so many people get acquitted, who should be so lucky.)

    Ultimately the in-breeding scenario is tough to overcome, owing to the nature of the organizational “command and control” beast we have historically gravitated toward and its associated human dimensions. It takes exceptional leadership objectivity, insight and humility to resist such temptations. That’s why so few organizations survive over the long haul.

It was interesting to note at the 2000 millennial: How many of the companies that were around in the top 100 at the 1900-millennial do you think were still around 100 years later? Guess? It was less than 10. Many of those earlier juggernauts had disappeared off the face of the organizational world by the 21^st century. The same will be true at the 2100- millennial. Is your enterprise going to be the next in-breeding victim? In-breeding ultimately undermines staff-engagement, which is why so many organizations disappear or wither-on-the-vine.

To learn more about how to avoid in-breeding, talk with: