Corporate leaders are incentivized and wired to pursue growth through acquisition, constantly getting bigger. However, they consistently fail at the strategically crucial, but less glamorous, task of divesting assets at the right time, often holding on until value has significantly eroded.
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Preparing a company for acquisition can lead founders to make short-term decisions that please the acquirer but undermine the brand's core agility, setting it up for failure post-sale. The focus shifts from longevity to a transaction.
Strong, cash-rich businesses often become unfocused and bloated, tolerating poor decisions that would bankrupt lesser firms. ValueAct Capital calls this the 'disease of abundance,' which they aim to cure by refocusing management on core strengths.
The most paralyzing decisions for a leader aren't clear-cut choices but dilemmas where every path is painful. Ben Horowitz's decision to take his company public with minimal revenue was a bad idea, but the alternative—bankruptcy—was worse. The key skill is choosing the 'slightly better' path in the abyss, despite the guaranteed negative feedback.
In high-stakes acquisitions, the emotional desire to "win" and achieve kingmaker status often overrides financial discipline. Acquirers, driven by ego, blow past their own price limits, leading to massive overpayment and a high likelihood of the merger failing to create shareholder value.
A study of companies in the U.S. and Denmark found that while MBA-led firms achieved better short-term shareholder returns, this came at the expense of employees through suppressed wages. Critically, these leaders showed no evidence of increasing sales, productivity, or investment. The resulting wage declines led to higher-skilled employees leaving, crippling long-term company health.
