Hard work, success, wealth, investments, fast cars, country houses, private jets, yachts, pretty wives.
Debt, mounting worries, fear, court proceedings, death threats, bankruptcy, prison, suicide, solitary confinement.
It is a very fine line.
To succeed in business entrepreneurs require courage, they need to be able to take risks, they need a vision, and they must have complete confidence in themselves and their abilities. To fail in business, that courage becomes foolhardiness, the risks become disproportionate, the vision loses focus and the confidence becomes arrogance. And there is not a lot between the two.
This book is about entrepreneurs and the leaders of some of the world’s greatest business failures. It is about how they went from hero to zero – and how they managed to blow it in the most spectacular manner possible. And from the failures, this book aims to highlight some of the lessons all entrepreneurs and business leaders can learn.
From unimaginable riches to languishing in a Siberian prison; from heading up one of Wall Street’s most successful investment banks to facing stinging criticism from a US House Committee. One way or another, they all blew it. We look at how and why.
This book is about people, about the central human element at the heart of these business catastrophes. It is about entrepreneurs and business leaders, and what drives these people to succeed and then to fail. Often, it is the same thing. And it often ends in tragedy.
Three of the people in this book are dead. Ken Lay had a heart attack and died facing charges surrounding his criminal role in the bankruptcy of the once-mighty Enron Corporation. Adolf Merckle, the German industrialist and multi-billionaire, lost a fortune and stepped in front of a train aged 74. British businessman Christopher Foster killed his dogs, horses, daughter and wife, before setting his house on fire and dying of smoke inhalation. These were tragic ends to incredibly successful careers.
Others in the book sit in prison. Bernie Ebbers from WorldCom, inmate 56022-054, currently resides in the Oakdale Federal Correctional Institution in Oakdale, Louisiana. Russian oligarch Mikhail Khodorkovsky finds himself in a Siberian prison, and Chinese property developer Zhou Zhengyi is also behind bars in Shanghai. Others simply lost vast fortunes. Yet it is never simple.
All sorts of people, friends, family, employees, suppliers and associates will have suffered also at the hands of the 16 men featured in this book. Good news for the lawyers, bad news for everyone else.
Entrepreneurs are many things. They have many admirable, likeable and worthy characteristics. Many of those in this book do or did a lot of good work for charities or society at large. WorldCom’s Bernie Ebbers taught Sunday school classes in Brookhaven, Mississippi; Guy Naggar supported a series of artistic institutions. Even Dick ‘the gorilla’ Fuld, more business leader than entrepreneur, of course, was on the board of directors of the Robin Hood Foundation, a charitable organization which tackles poverty in New York City.
But these leaders also have traits that do not endear. While there is no doubt that some entrepreneurs cross the line into criminality, the vast majority do not set out to deceive, defraud or steal money. They set out to build something, to achieve something and to grow something.
Yet there is a clear line between doing business fairly, legally and properly, and trading while knowingly insolvent, or selling shoddy goods or services for vastly inflated prices. Some of those in the book crossed that line: Bernie Ebbers, Reuben Singh and Ken Lay to name just three.
This book is about entrepreneurs, not fraudsters. That is why it has avoided including the likes of disgraced former US financier Bernard Madoff.
There are no end of books on corporate success and a myriad of self-help books: how this product became the world’s best seller; how that person made his career defining decisions which produced billions in revenues; why taking a particular path in life was staggeringly successful for the author or subject of the biography. Of course people want to know how other people have done it and if the success can be replicated. Yet often the reader is left with a feeling that they do not really know how they did it, or that certain events, facts, difficulties and challenges were not included in the book. Were they really just friendly, inspiring people?
Surely the best way to learn is from mistakes and it has been said that the definition of intelligence lies not in making mistakes, poor decisions or bad judgments – it lies in not repeating them. And that is what this book sets out to cover.
This book’s aim is positive. By examining some of the world’s most prolific and successful businessmen and entrepreneurs, and looking at their falls from grace, the idea is to learn lessons about how to avoid those mistakes.
Iranian entrepreneur Robert Tchenguiz built up an incredibly successful business portfolio that concentrated on property and leisure. With property prices ever rising and more money than ever being spent on leisure time, what could go wrong?
British investor Kevin Leech put his earnings into a bewildering array of interests. From cars to computer games, he was the ultimate business angel, sticking in his money to launch or really create a business. Dotcoms were on the rise; it was easy money.
Jón Ásgeir Jóhannesson, the Icelandic retail tycoon, almost single-handedly helped his native country go from a relatively obscure rock in the middle of the Atlantic Ocean to a business colossus on the world stage. Move over Wall Street, the Icelanders are coming!
They all did something remarkable – they all built huge business empires worth billions (at least on paper). But then they all did something unbelievable – they somehow managed to lose it. They blew it. They had it, now they don’t.
This is not a witch hunt – the facts are there for all to see. The idea is to present the facts, pick through the bones of what happened in each case, and try to provide lessons to other would-be entrepreneurs. Ultimately, the failings were mostly very human ones. Pride, envy, greed, hubris and ego were never far away in many of the cases, but there was more to it than that. It takes some effort to lose a billion dollars.
The credit crunch and associated recession wiped something like £155 billion from the fortunes of Britain’s richest 1,000 people, according to the Sunday Times Rich List. That is equivalent to more than a third of their wealth. The Forbes magazine rich list of billionaires has seen 332 names cut from the list, and those left have lost around 23 per cent of their wealth. The likes of Bernie Ebbers and Ken Lay, once gracing the world’s rich lists are doing so no more.
But rather than bringing into question the capitalist system, the ongoing economic issues have intensified its justification. The period has witnessed families, corporations and generational dynasties being razed to the ground by the credit crisis, poor decision making, bad management, gambling and sometimes pure fraud.
It shows there is no members club of unassailable wealth; no rich man’s conspiracy to which the man in the street does not belong. This meritocratic wealth evaporation is a form of socialist capitalism. No one is immune from ruin, no one is spared from the tsunami of bankruptcies that have spread from coast to coast, across national boundaries and permeated even the most hallowed, revered bastions of capitalism.
It proves the thesis of capitalism: it respects no one and does not discriminate in favour of or against race, colour, ethnicity, gender or religion – or the previous size of a bank balance. If you fly too close to the sun, just like Icarus, you will fall into the sea.
Speaking of that, imagine yourself on a transatlantic boat race, having left from Southampton, England. Exactly half way across the Atlantic, your million-dollar catamaran capsizes. You manage to get on board a rowing boat, perhaps with a few other crew members or maybe alone. What do you do? Row back to England or continue to the United States? It is the sort of no-win situation faced by entrepreneurs. A business they have built up for 5, 10 or 20 years is facing bankruptcy. They are faced with putting up more money – their personal money, not the bank’s – into their business or letting it capsize. After all the years of building their business brand and reputation they have a tough call. But it’s not just about them. There are long-term staff working at the business who are now firm family friends. What do they do?
Most entrepreneurs end up putting a large part, and in most cases all, of the money they have accumulated, their entire wealth, on the line to save the business. Mark Goldberg is a great example. They have to do this because no one else will do it and they cannot bear to see their ‘baby’ die.
It is not something people who have not run a business can easily understand.
Often, the entrepreneur is perceived as wily, shrewd, in it for themselves, self-serving and never making a decision that will impair their financial position. And for most of their business lives this is probably a reasonable appraisal of their character and situation. Yet faced with bankruptcy, the entrepreneurial attitude can change completely. From being analytically shrewd, intuitive and calculating, they become emotional, generous and illogical. Again, Goldberg, with his blind love for Crystal Palace Football Club, is a prime example.
That is normally the point at which they decide to put far too much of their own money back into the business, or pledge far too many personal guarantees to banks and more dubious lenders in a fraught and desperate bid to save their prized business from impending doom.
This tale of last-ditch attempts to resolve a disintegrating business is repeated many times in this book. Adolf Merckle, the German industrialist, took a bet on the share price of car manufacturer Porsche and he got it wrong. He lost billions and took his own life as a result. James Cayne at Bear Stearns, even in the final dying days of the US investment bank, was counting on pulling off one final deal to save the day. It didn’t happen. Bernie Ebbers, the self-confessed technophobe, was on the verge of buying his firm’s rival Sprint Communications for a staggering US $115 billion just as the wheels were coming off his business. It was all or nothing for all three men.
All the people featured in this book are male. Indeed, it would have been a difficult task to make it all female. In a way this is understandable – there are simply more men heading large businesses who are in a position to blow it. The former British deputy prime minister, Harriet Harman, even went as far to say that if there were more women at the top of big businesses, the credit crunch might not have occurred at all. If Lehman Brothers was Lehman Sisters, who knows?
But with more and more women running businesses around the world, there must be more to it than that. So why do no women feature? It might be something to do with legacy – and the propensity to take risk.
British King Henry VIII is a great example of a man desperate to leave a legacy. By the time he died in 1547 he had more than 60 houses, yet it was Hampton Court Palace that was most important to him. Over a 10-year period, he spent more than £62,000 rebuilding and extending the palace (around £18 million in today’s money), including tennis courts, bowling alleys, a hunting park of more than 1,100 acres and kitchens covering 36,000 square feet. Construction began on some of his palaces as he was coming to the end of his life, but what better way to show the world what a great and illustrious man he was, what a visionary, what a thinker, what a powerful person he was. Since Henry struggled to bear a son, it was a way of leaving a lasting mark on the world, like kings throughout history. This book features a lot of that attitude.
Yet while a man’s needs may inspire him to start his own business and improve his circumstances, this is not what drives a millionaire to become a billionaire or a billionaire to become a multi-billionaire.
Perhaps men put greater store in their business achievements and therefore take more risks than women. Perhaps it is sheer ego. While the female approach is to build a stable business that can support her and her family, the often irrational, nonsensical risk-taking method of growing a business seems very much a male preserve.
But women were there in the background, supporting their husbands, no doubt praying they would find an answer to their current business woes and manage to somehow deal their way out of trouble. Of course, there are many women left to pick up the pieces.
Tied up with this yearning to leave a mark are often relationships with political elites. In most countries, leaving a real mark on the world can only happen with the consent of the government, and woe betide anyone who doubts the power wielded at the top.
Russian businessmen Boris Berezovsky and Mikhail Khodorkovsky are two great examples of entrepreneurs getting close – too close – to the powers that be. Berezovsky, a former oil baron, once had the ear of a Russian prime minister: he’s now in exile in the United Kingdom, the target of death threats and various attempts on his life. Khodorkovsky, once the 16th wealthiest man on the planet, now languishes in a Siberian prison, scolded for not attending sewing classes. Both wanted more – they had money but they wanted real political influence. It is a dangerous game.
It is also odd, knowing the risks, that they would wish to become embroiled with the murky world of politics. Numerous other successful business people and entrepreneurs, the likes of Bill Gates (Microsoft), the Walton family (WalMart) and in the United Kingdom figures such as Charles Dunstone (Carphone Warehouse) and John Caudwell (founder of Phones4u), have avoided being overtly involved with politics. Some business people appear to be seduced by the power of politics, others realize it’s best left well alone. Ultimately, politicians and political parties come and go – getting involved too deep with either side can lead to disaster.
Apple founder Steve Jobs said there’s no point being the richest man in the cemetery. He’s right, of course, and religious scriptures from around the world have long reiterated the point that you can’t take your earthly wealth with you. Yet enough often doesn’t seem to be enough for the super-rich. Guy Naggar and Peter Klimt, two men who ran one of Europe’s most successful property portfolios, got into all sorts of businesses and ventures. Rich beyond most people’s imagination, with art collections that would make most galleries blush, they too wanted more: the next deal, the next profit.
Building a fortune for the next generation is fraught with problems. Newspapers are full of wealthy second or third generations squandering away the hard-earned fortunes, children reduced to drug addicts, dysfunctional and squabbling over the remains. So why do so many entrepreneurs pursue the sort of wealth that they could never possibly spend? Why are they never satisfied with what they have? Why do they want more?
It is here that there is a distinct difference between so-called ordinary people and entrepreneurs. Research has shown that when people earn more than £300,000 (US $480,000) annually, their behaviour changes. Quality of life issues, such as spending more time with the children, become more important.
Yet the entrepreneurs in this book earned considerably more than £300,000 and few showed any sign of letting up. Adolf Merckle was worth close to US$13 billion when he gambled on the stock market – he lost billions, but not his entire fortune. It was enough to send him over the edge. Was he continuing to pursue this high-risk strategy to further improve his already privileged and extremely luxurious position? The man regularly rode to work on a bike and drove a battered old car, so it’s doubtful. Far more likely are the more noble of human emotions and motivations – respect, admiration and self-realization.
These people, these entrepreneurs, are relentless.
Many wealthy people look to sport as a way of spending their money. Bernie Ebbers bought a minor league hockey team in Mississippi. Perhaps those who do this want the thrill of success that they can rarely share in their business lives. Entrepreneurship, after all, can be a lonely business.
Investing in a football club proved to be the undoing on one of the entrepreneurs in this book, British millionaire Mark Goldberg. He invested his entire fortune into a London club only to see the thing collapse around his ears. While he cracked the IT recruitment business to make his fortune, those skills could not be transferred into making money in sport.
Parallels can be drawn between sportspeople and entrepreneurs, though, particularly in terms of being relentless and having a will to win. No one criticized British rower Steve Redgrave for attempting to win five Olympic gold medals. No one tried to stop US swimmer Michael Phelps going for eight. No one wants Swiss tennis maestro Roger Federer to stop playing tennis even though he’s won so many grand slams titles. So why should the likes of Robert Tchenguiz, Kevin Leech and Reuben Singh stop trying to make more money? It is what they do, after all.
There is an argument that some entrepreneurs are driven by insecurity and a desire to prove themselves. While the monstrous egos and extravagant lifestyles are there for all to see, it is often a deep-seated insecurity or a desire to prove themselves that are at the real root of the entrepreneurial drive. Many of those included in this book came from humble backgrounds: Bernie Ebbers’ father was a travelling salesman and Kevin Leech’s father ran a garage. It is understandable that they would want to better themselves and once they had, not return to those roots.
On the other hand some of those in this book had wealthy families and cosseted upbringings. Robert Tchenguiz’s father was a wealthy businessman. These men had it all on a plate, but either than plate wasn’t big enough or they wanted a big plate of their own. In principle, there is nothing wrong with this.
The book also looks at a number of supposedly deeply religious men. They went to church, prayed regularly, donated to good causes and helped those less well off in their communities. Ken Lay and Bernie Ebbers were big religious believers, using God in their defence, citing God as their Maker, the one and only being who could judge them. Of course, in a way, they were wrong. They were both judged by their fellow men and found guilty.
It is hard to see how they could have truly believed in God and the teachings of Christianity, and allowed the wrongdoing in their businesses to continue. In Lay’s case, he allowed Enron finance chief Jeff Skilling to cook the books and other senior executives to get away with other lurid behaviour that would have been an instantly sackable offence in most other businesses. Yet while the money was being made, Lay turned a blind eye. Is that what it says to do in the Bible?
More bizarre still was the fact that Bernie Ebbers taught Sunday school classes. Today’s lesson: Thou shalt not steal…
Somewhere down the road, these business people crossed a line. It is difficult to pick out one defining point at which these people changed. While efforts have been made to present a balanced view on what took place in these case studies, the truth is, only the men at the top will ever really know what went on and at which point the writing was on the wall. Some, of course, remain unrepentant. Ken Lay went to his grave talking up his innocence. Others have taken – or will take – their secrets with them.
The fact is that life is complicated, and business life even more so. Human motivation, emotion, politics, bias and subjectivity cloud and mystify even the most basic profit-driven transactions. What seems like a simple business model invariably isn’t. What seems like a straightforward deal is anything but once the volatility, urges and mood swings of the main protagonists are taken into account. That is the point of this book: to look at the facts, and look at the people at the heart of these incredible business collapses.
Just how did these people manage to blow it?