Two Fantastic Failures - One Old German and One New American

         Contents

         1) Introduction

             a)The Perfect Storm (in German, eine Einleitung)

             b) Gently Drifting Down the Stream . . .

            2) Then: The Stinnes Imperium

            3) Now: The CFS Story and the Billionaire Coach 

    1) Introduction

        a) The Perfect Storm - Der Perfekte Sturm

    The ideal scenario for catastrophic failure, "the perfect storm," may be summarized in German as:

    Marktbrüche setzen sich plötzlich ein. Wettbewerber verwandeln sich in mörderische Bestien, die mitgerissene Kundschaft in ihren Klauen, während ihre Reißzähne die veraltete Technologie zerfetzen.

    Der adlige Geschäftsführer, gekennzeichnet durch ein Backpfeifengesicht und zunehmenden Kummerspeck, verharrt sich unschlüssig. Trotz verheerender Nachrichten bleibt der ganze Vorstand der althergebrachten Strategie treu, jeder Art von Abänderung abhold. Je schlimmer die Lage wird, desto mehr wird die Liebe zu alten Grundsätzen mit einer geradezu widersinnigen Gier nach eigentlich nur geringfügigen taktischen Neuigkeiten und einer unstillbaren Neigung zu Klatsch und Tratsch gepaart. In Vorstandssitzungen wird so viel über mißlungenen Wunderlösungen gequengelt, daß die Teilnehmer von dem immer wieder gesungenen Klageliedern Ohrwürmer bekommen.

    Auf der Führungsetage sind alle Angestellten Seiner Durchlaucht hörig. Die Belegschaft nennt seine vier engsten Mitarbeiter D'Artagnan den Schattenparker, Athos den Sitzpinkler, Porthos den Warmduscher und Aramis den Turnbeutelvergesser, seine Chefsekretärin, mit der alle diesen Musterknaben ein Techtelmechtel hatten, das Dreikäsehochmagd und den Vorstandsvorsitzende den Pimpf. Der kriegt das Unheil mit, sieht aber tatenlos mit Fremdschämen zu. Nicht mal ein Treppenwitz fällt ihm ein

    Der erste Vierteljahresbericht stiftet Verwirrung, der zweite stellt einen Geschäftsmischmasch dar, der dritten einen Kuddelmuddel. Der Jahresabschuß kündigt einen Kladderadatsch¹ an. Sämtliche heurige Geschäftsbereichen erleiden furchtbare  Einbüsse. Die Berichte für das nächste Jahr beschreiben im ersten Quartal einen Wirrwarr, im zweiten ein Tohuwabohu, im dritten das Chaos fürderhin und am Ende des Jahres wird die Hiobsbotschaft von einem lauernden Weltuntergang verkündet. Schon schweben mehrere Pleitegeier über dem Betrieb.

    Im dritten Jahr geschieht das Unvermeidliche, Armaggedon tritt tatsächlich ein und das Unternehmen stirbt ein ruhmloser Tod: Schluß, Punkt, fertig, aus, Bankrott. Und die leitende Mimosemannschaft, wie sieht es bei der aus? Die Gerüchteküche brodelt: "Der Oberchef ist ziemlich in der Bredouille." "Sein Götze ist das Geld." "Er ist mit seinem Latein am Ende."  "Mag sein aber er wird trotzdem sein Schäfchen ins Trockene bringen."

    Mit der Zeit entwickeln sich auch die verzweifelten Weicheier weiter, nicht aber unbedingt in erfreulicher Weise. Durch den ich-bezogenen Überlebenskampf ist jede Spur ihrer hündischen Loyalität verschwunden. Homo homini lupus*, . . . „Ein Wolf ist der Mensch dem Menschen.“

*Das Latein ist ein abgewandeltes Zitat des römischen Komödiendichters Titus Maccius Plautus (ca. 254–184 v. Chr.).

        b) Gently Drifting Down the Stream. . .

    Surprisingly few entrepreneurs are able to set a precedent for orderly succession that persists over centuries. Notable dynastic exceptions are the Rothschilds, originally from Frankfurt, and the Fuggers of Augsburg (a city outlying Munich). Far more common is decline, sometimes gently drifting down a stream, sometimes hurtling over a waterfall. Two salutary cases are presented below. The first is the gentle decline of the Stinnes Imperium in Germany. The second is the thundering waterfall of the CFS story, from a billion to bankruptcy in two years flat.

    Two sides of the coin of failure are the complacency of long (cash cow) success and the hubris of some Alpha entrepreneurs as they blithly float downstream, the current carrying them ever faster towards the waterfall. A nursery rhyme from the 1850s describes complacency well:

Row, row, row your boat,

Gently down the stream.

Merrily, merrily, merrily, merrily,

Life is but a dream.

    In 2012 Chris Mason but some edge on it, which can well apply to life at a company run by an autocratic founder. In his song "Seven Deadly" he raises the spectre of that dream being a nightmare: what if life were just "a scheme, trapped inside a mad-man's dream."²

    2) Then: The Stinnes Imperium- Slow Motion Fading Away

        - going, going, just about gone.

³

Hugo Stinnes (1870 - 1924) in his 30s.

    At his zenith Hugo Stinnes owned a conglomerate:

• of 1664 independent companies,
• employing 600,000 persons,
• with interests in another 2890 companies.

    In 1808 Mathias Stinnes started his business with a single cargo barge. He was just 18 years old. When he died at the age of 55 he had 1000 employees, owned important mines and had one of the largest inland shipping lines in Europe. His grandson, Hugo Stinnes, decides in 1892, when he is 22 years old, to start his own firm, Hugo Stinnes GmbH, to combine coal transport from the Ruhr with inland shipping, in competition with the family firm.
    Soon Hugo Stinnes was entering markets heretofore dominated by Krupp and Thyssen, and becomes himself a "Ruhr Baron."  In World War I he conducted espionage against Russia over disguised branch offices and smuggled foodstuff into Germany. After World War I the third Stinnes generation came to the fore. The oldest son, Edward, who had served in the military, and his younger brother, Hugo junior formed with their father the triad that ran the empire. The company seized the opportunities created by the hyperinflation of the Weimar republic.*  

*In 1921 the mark was 81 to the dollar; in 1922 it went to 670; in March 1923 to 30,000; in June to 152,000; in July to 1,000,000. After that, the mark went into free fall. On November 20th, 1923 the new rentenmark was introduced.  One renten mark was given for each thousand billion, i.e. trillion of the old -- and the inflation mess was ended. Source: John Kenneth Galbraith, Money, Whence It Came, Where It Went, Houghton Mifflin, 1975, from Chapter XII, "The Ultimate Inflation," pp. 146 - 163. (In 1948 the Reichmark was replaced by the Deutschmark at a rate of ten to one, in turn to be replaced by the Euro in January 2002 at a rate of one to one.)

    In 1924 Hugo Stinnes died unexpectedly at the age of 54. At his death he had the largest conglomerate in Germany.  It consisted of 1664 independent companies such as coalmines, banks, insurance companies, railroads and shipping lines.  It also had interests in another 2890 businesses. In all, 600,000 people received their wages from Stinnes.  His two sons, 27 and 28 years old, continued to run the empire. The brothers fell out and the firm overextended itself. It was saved at the brink of bankruptcy by a major loan from the U.S.
    In World War II Hugo Jr. profits from Russian forced labor, but uses his barges to help Jewish employees flee. He was also in contact with the German resistance movement, including Carl Friedrich Goerdeler, who was executed for his involvement in the Hitler assassination attempt of July 1944. Nevertheless after the war Hugo Jr. was interned for 10 months by the British before being released. Upon release he had almost no assets left. However, he did have contacts. He used these in starting, with his mother and younger brother Otto, a shipping line for freight.  
    In 1953 Hugo Jr. left the family firm under strained circumstances to start another enterprise on his own. In the 1950s Adenauer had convinced the Americans to leave the Stinnes concern in German hands, and a Stinnes AG was formed, which in 1965 was taken over by Veba. Meanwhile -- it is a long "meanwhile" of 20 years -- there are two Stinnes companies competing against one another. One is in the hands of Claire and Otto. The other belongs to Hugo Jr.
    Hugo Jr. is able to build a conglomerate of 13,000 employees with products ranging from hearing aids to radar installations and earth moving equipment. Then he overreaches himself and the firm starts hemorrhaging red ink. This red ink splatters on to the "other" Stinnes concern run by Claire and Otto. That firm in turn becomes almost bankrupt. 
    In 1971 Hugo Jr. was finally forced to file bankruptcy. Eleven years later he dies destitute at the age of 85. His brother Otto dies the same year, but is able to leave behind a healthy family business. 

    Aftermath 
    The current generation, Mathias Stinnes, eventually sold the freight line in the 90s. Today he has a "castle hotel", Burg Schlitz in Meklenburg, as well as half a dozen other Meklenburg companies. Granted, there are not actually zero Stinnes employees. But one can hardly talk of a Stinnes emporium, let alone of an imperium or dynasty any more. 

    Sources

    Klaus Rathje has written articles about the family and, with Bernhard M. Domberg, a biography: Die Stinnes -- Vom Rhein in die Welt, Signum, 2009. There is also a brief, nicely done chronology with attractive photographs at a company website (in German).  

    Lesson
    On his deathbed Hugo Stinnes, the man for whom 600,000 people worked, warned his sons against debt: "Was für mich Kredit ist, sind für euch Schulden!"  (What is credit for me are debts for you.)

            3) Now: The CFS Story and the Billionaire Coach, Instant Bankruptcy

                - the CFS Story, from 3,900 employees to 0 in less than two years

                - Bill Bartmann, the Billionaire Business Coach

4        

The "CFS Ship" in its heyday in 1997. 

The founder rejected an offer of $600 million for a 1/5 stake in the firm.

    Bill Bartmann likes to win and he has won here the selection for the modern failure story. He beat out some formidable competitors, such as General Motors, which in 2011 recovered from its flirt with bankruptcy. His selection was based on the fact that today he is highly visible, accessible on his website, as linked below. One can relate to the man and to the failure in a more personal way than to the anonymous, faceless senior management team of General Motors.  
    In his case the personal strategy repair is to write a book and go on the public speaking circuit, fair enough. Apparently he is also a business coach. Bridges has to admit to mixed feelings about Bill Bartmann as a business coach. To say we were not envious of, jealous of the successful part of his past would be a lie. We have not built a 5 billion dollar, 3,900 employee company. However we would not anoint him to a place of honor alongside master coach Marshall Goldsmith on our Eminent Referrals either. 
    "The Billionaire Business Coach" is how Mr. Bill Bartmann, an attorney by training, is sometimes referred to. Always interested in surveying the competition among executive coaches, we examined his website. There he presents an interesting video on CFS, the company he founded and built to 3900 employees. He makes an open and frank, at times even charming, presentation about the spectacular failure of CFS -- at lightening speed --  and the consequences. That includes his having been indicted on 57 felony counts, which entailed a possible combined sentence of 600 years. At a marathon three-month trial he was found innocent of all charges. 

5

The "CFS Ship" foundered in 1999, all 3,900 hands lost at sea.

    In 1997 he turned down an offer from Goldman Sachs of $600 million for a twenty percent stake in it. CFS filed bankruptcy in 1999, just two years after the Goldman Sachs offer. Some 3900 people lost their jobs. (Hmmm, one would think the astute investment bankers at Goldman Sachs would have noticed some early warning signs in conducting their due diligence for a $600 million offer.) Interesting is that even though he owned 80 percent of CFS, he never diverted any major portion of the company´s funds to himself.  

Aftermath
    In May 2009 Bailout Riches! How Everyday Investors Can Make a Fortune Buying Bad Loans for Pennies on the Dollar by Bill Bartmann and Jonathan Rozek was published. In it Bill Bartmann explains the bad debt collection system with which he made his short-lived fortune. At Amazon.com there is an interesting review, written by the branch manager of a bank, which begins with the comments:

"I like Bartmann's straightforward writing style and his occasional use of humor. I was nearly on the floor laughing at times. . . As for the substance, I would call this book a "how did" rather than a "how to." The world has out-grown the method."

    At his zenith, Bill Bartmann certainly pursued the lifestyle of a maharaja or nabob.* However he drew a relatively modest annual salary of $2,000,000. In contrast in 2006 Barry Diller, the CEO of IAC/Interactive, took home a pay package of $469 million. That made him the highest paid executive in the U.S. that year, earning about $150,000 an hour. The company´s stock price declined 7.7 percent that year. (Imagine what his pay package would have been if he had actually created value, instead of presiding over a decline!) Barry Diller was able to reward himself so generously because of a captive board of directors. Although he owned outright only two percent of the voting stock, he controlled 56 percent of it. (The source is the article "The Laziest Man in America" by Nicholas D. Kristof in the New York Times, 20 Nov. 2006.)

*A maharaja is an Indian prince ranking above a raja, especially one of the rulers of the principal native states of India. A nabob is a viceroy in India, a governor of a province of the Mogul empire, or a person who returns to Europe from the East with great wealth. 

    A good background for watching Bill Bartman´s entertaining video on his website is to read the Fortune Magazine article by Jerry Useem, "How to Lose a Billion. Bill Bartman amassed a huge personal fortune building a wildly profitable company. Too bad it was all on paper." October 25, 1999.⁶ In the article one notes that Bill Bartmann exhibits several of the "failure characteristics" Sydney Finkelstein identifies in Why Smart Executives Fail, as listed in the previous section. Below are two quotes to give the flavor of the article: