Scandalous management better than stupid management

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Here's a quick quiz: What's a bigger problem: (1) Crooked top management or (2) stupid and insular top management?

If you chose No. 1, you should be ashamed for your lack of insight and perspective: Crooked top management can be cleaned up by throwing a few managers in jail, passing legislation like Sarbanes-Oxley, and scaring boards into having a little more backbone. Stupid and insular top management, on the other hand, is harder to root out. It's more entrenched and harder to identify.

Here's what I'm talking about. The only thing more stupid than Bernie Ebbers cooking the books at WorldCom and then pleading that he didn't know anything about it was the panicky reaction of competitors.

A while back CNBC ran an interview with Mr. Ebbers, and they also talked with Mike Armstrong, then the head of AT&T. Mr. Armstrong said he couldn't understand how WorldCom could be so profitable. Based on the phony numbers WorldCom conjured up, AT&T proceeded to lay off 10,000 people.

Lots of investors were also being duped by WorldCom's high-flying numbers, but wouldn't you think that a competitor would have a better handle on their actual book of business? Was WorldCom stealing massive numbers of subscribers from AT&T? Were they able to service their subscribers for much less? If it's one thing the telecoms know it's their own and their competitors' churn rate and the basic cost of serving a customer.

Nobody has accused Michael Eisner of being stupid, but some of the things he did at Disney were dumb beyond belief. When Disney bought the Family channel for a whopping $5.2 billion, it was assumed that Disney would be able to "repurpose" programs from its ABC TV network. But ABC didn't have such rights. As James B. Stewart wrote in "Disney War," nobody raised this elementary point. "It was an egregious failure of the kind of due diligence routinely conducted before a major acquisition," Mr. Stewart said. "To the ABC executives it simply confirmed the arrogance of the strategic planners, and Eisner's blindness to potential obstacles once his mind was made up."

One of the first things Bob Iger did when he took over as CEO was to dismantle the strategic planning unit and give authority to evaluate deals back to those running the businesses.

To me, hiring good people and letting them have their head is a hallmark of good management, but centralized decision-making makes this approach impossible. That's what's wrong with General Motors. They call all the shots at the corporate level, where they are incapable of approving a spiffy design for a new car that people would actually want to buy. Maybe I'm missing something, but by any reckoning it doesn't cost any more to come up with a snazzy car than a boring one, yet GM management would rather see their company go down the drain than come out with something radical and daring.

Anheuser-Busch was never a company consumed by doubts, until, that is, the new (foreign) owners of Miller beer came along. A-B always set the agenda and forced competitors to react to them. But now Miller has A-B clearly rattled. Doesn't the company realize that nobody cares if Miller is now owned by South Africans, any more than U.S. car buyers care that Toyota is Japanese?

To wrap yourself in the flag smacks of desperation, and A-B's sweaty palms won't go unnoticed by young beer drinkers who rightly think that downing a few brewskis should be a good time rather than an act of patriotism. That's why I say I'd rather have a few crooks out there than smug and insular (equals stupid) management.

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