Excerpt

INTRODUCTION

This text describes recent history of a very large U. S. Corporation, covering the later part of the 1990’s, and into the 2000’s. Its plot involves a power struggle to take over the Chairman position of a large manufacturing company, NCX (formerly known as Consolidated Steel of America), when the current Chairman was close to retirement. In a deeper sense, events demonstrate the consequences of misusing and being bored with power, once it is obtained.

One man, Fred Yoo, passionately wanted this position conferred on him, in either 2000 or 2001, depending on the current Chairman’s schedule. However, soon after Yoo achieved his hard fought goal, the company’s performance deteriorated in spectacular fashion. To some extent, factors involved were outside Yoo’s control, but most of the problems were either caused, aggravated, or neglected by him and his main lieutenants. Then, to top things off, upon leaving the firm, he awarded himself a golden parachute of incredible size.

In his favor, Fred had been the primary driving force that had turned a stagnant old line heavy manufacturing operation into a growing Financial Services organization with a significantly dynamic image. He used the credit received from his acquisition and redirection activities, first to demand, then to threaten, and finally, to receive a promotion to Vice Chairman of Consolidated. Through this step, by becoming a member of the company’s Office of the Chairman, he solidified his favorable position to become the next Chairman and Chief Executive Officer within a few years.

He reached his peak performance by completing two large acquisitions, which then grew even faster than anyone had anticipated. One was an insurance company and the other was an investment management firm. At this time, Yoo and NCX were lauded at business luncheons and in business schools for having implemented a classic, successful redirection of a giant American corporation. They were cited as a standard for other firms to follow. Soon, however, negative results were generated by the following occurrences.

Yoo’s tenure at NCX confirmed one criticism of him that haunted him throughout his career. Whenever he achieved some goal – whether with business, acquisitions, stocks, mistresses, wives, or whatever – he became bored with the results of the goal and wanted to move on. This affected how he treated those loyal to him, as well as NCX stockholders.

Probably stemming from this trait, there was a continuous saga of mismanagement, particularly on the marketing side, at Big Apple Life, one of NCX’s earlier insurance acquisitions. A combination of a very high purchase price for an investment banking firm, White Brothers, was followed by its significant operating losses in a dotcom-induced market slide. To a lesser extent, NCX suffered from a combination of a high purchase price and poor subsequent earnings performance by a mortgage-banking firm, Fried Financial. Promor Insurance, where Fred had participated in a leveraged buyout of a title/mortgage insurance operation, also suffered from negative financial developments. Towards the end of his reign, Yoo, freed from risking his own money, invested unwisely in hotel resorts.

Finally, Fred and his key lieutenants made inadequate, timid responses to charges of substantial exposure to a deluge of excessive life insurance claims on replaced policies. They ignored significant positive evidence that could have been used in NCX’s favor.

An even harsher complaint against Yoo was that he abandoned his own policy of decentralized management of acquisitions. Two successive sets of NCX bureaucrats, one before Yoo and the next one during his regime, refused to relinquish a long standing policy of centralized control over acquisitions. At first, Fred fought this attitude vigorously, but eventually he let his own policy go by the boards.

Yoo did not change the fundamental cultural characteristics of NCX’s management. They consisted of continuous political maneuvering, intrigue, and back-stabbing, rather than productive efforts.

Yoo’s personality and management style contributed to all the tumultuous events. He combined arrogance, aloofness, and evasiveness, together with considerable charm. Initially, he flaunted his freewheeling ways, with continuous negotiations for new acquisitions without going through the elaborate, involved NCX machinery.

One indication of Yoo’s management problems was his recruiting of his own key executives. He hired an individual at $500,000 salary to take over day to day operations of his sector, but he performed no real checks on the man’s qualifications. Yoo then reneged on his promise to turn over operating authority to the new hire. This man was soon bragging that he was going to bury Fred. Vile racial terms crept into their conflict. Only through several fortuitous events was Fred finally able to get rid of him without derailing his campaign for the Chairmanship.

Yoo had asserted that he could successfully manage the executives in his newly acquired companies. However, in short order, most of the original core of these insurance managers left NCX. Pre acquisition screening had indicated that most of the executives were still young enough to continue working. What it failed to consider was that several of them made so much money from the acquisitions that their incentive to keep working was adversely affected. This was especially true once they became exposed to the corporate bureaucracy and intrigue of NCX.

This book most definitely does not describe a well run organization, set forth as a model for other large organizations to emulate. Instead, NCX’s errors and internal struggles undid its initial success at redirection, so that defeat was snatched out of the jaws of victory. During 2002, the company was acquired by another organization at a bargain price. Yoo relinquished his Chairmanship role and took the abovementioned lavish golden parachute award. Although the original corporate name continued for awhile after acquisition, today, NCX no longer exists as an independent company.

It should be obvious that most corporations are not nearly as inefficient and poorly run as the fictional NCX. If they were, our nation’s GNP would be down somewhere in the third world category. Nonetheless, there are a lot of lessons to be learned and morals to be pointed out about the NCX saga.