An Investment Banker As CEO?

“While radical corporate transformations are sometimes necessary, gutting a company and then rebuilding it is just as risky as it sounds.

“Former Thomson SA Chief Executive Frank Dangeard found that out the hard way. Over the past eight years, he engineered an audacious makeover at Thomson. He dumped the Paris-based company's unprofitable TV business, which made RCA- and Thomson-branded sets and picture tubes, and he bought dozens of small companies to create a 5.6 billion euros ($8.8 billion) provider of set-top boxes, DVDs and video-production services. He also cut more than two-thirds of the work force and reduced the size of the executive team. By last summer, more than 80% of the company's 23,000 employees had joined since 2001. Then the Canadian-born, Harvard-educated investment banker declared the hard work of assembly finished…

“But Thomson's latest transformation was extremely unusual in its scope and speed, and it left the company disjointed…

“Mr. Dangeard envisioned creating a ‘one-stop shop’ of digital-content equipment and services for cable and telecommunications companies, movie studios and TV channels. The theory was that a broadcaster purchasing a set-top box for high-definition television, for instance, might also hire Thomson to edit its TV shows or take over its production department.

“Inside the company, though, the changes were overwhelming. So many of the top 300 executives were new in 2005 that when 20-year veteran and Chief Operating Officer Didier Trutt was introduced to them, he barely knew any, Mr. Collis says...

“Each unit typically sold only its own products -- often under its own brand -- even when a different part of Thomson offered a related product. Some units, like Technicolor, preferred buying equipment and technology from outside the company, rather than using those developed by Thomson's research-and-development labs…

“Analysts remained skeptical. Many had long questioned whether there were benefits to housing Thomson's varied parts under a single corporate roof. They said there was no evidence that companies wanted to buy all of Thomson's offerings from a single vendor...

“Mr. Dangeard says Thomson's customers like the breadth of the company's offerings, even if they don't take advantage of them. He says Thomson would ‘lose credibility’ with customers if it broke itself up. In announcing Mr. Dangeard's departure, the board said that it was sticking to the strategy of making Thomson a world leader in ‘video solutions.’”

(“How Remaking Thomson Cost Its Chief His Job.” Phred Dvorak & Leila Abboud. Wall Street Journal: April 14, 2008. p. B.1)

BUYING AND SELLING BUSINESSES is the easy part, contrary to the view of it as "the hard work of assembly."

The hard work, the heavy lifting, is being in touch with customers and employees.

With no evidence to support their theory of revenue synergies, and no sense of touch nor feel for their core constituencies, the board fires a sacrificial CEO and persists in his strategies.

So once again, change may be vital, but it always is costly, risky and threatening.