Power Sheet - June 22, 2016

Why is succession so hard? Nikesh Arora’s sudden resignation yesterday as SoftBank’s president and heir apparent to CEO Masayoshi Son, 58, was presented by the company as so harmonious as to be a virtual love-fest, but in fact it was a blown succession, and that’s a bad thing. The key sentence in Son’s statement is “[Arora] should be CEO of a global business, and I had hoped to hand over the reins of SoftBank to him on my 60th birthday – but I feel my work is not done.” Which could easily be read as, “My work is not done because I no longer think Arora is up to the job.” That’s pure speculation, of course, and it may be that the real explanation is an impulsive change of mind by an eccentric genius, which Son has shown himself to be since starting SoftBank over 30 years ago. We just don’t know.

And investors hate that. In any company that isn’t in crisis, they like successions to be planned, reassuring, and uneventful. This stumble at SoftBank is bad enough in itself because the future that investors were betting on will now not be the future. Possibly worse, investors will be skeptical of Son’s next succession plan, whatever and whenever it may be. They may even begin to fear that Son is one of those founder-leaders who cannot bear to let go, ever. A blown succession does more damage than is first apparent.

Yesterday we noted that on Monday German prosecutors had opened a criminal investigation of former Volkswagen CEO Martin Winterkorn for not warning investors about the impending financial damage from the emissions cheating scandal. Later it was reported that prosecutors were also investigating VW brand chief Herbert Diess on the same issue. Then yesterday Reuters reported that Germany’s financial regulator had filed criminal charges against the whole VW board. Also yesterday, a large global group of institutional investors sued VW in Germany.

What could happen next? Well, VW’s annual meeting is today, so we’ll see. The tempo of news will likely slow for a bit. But it’s remarkable that after nine months, this crisis is still building.

New horizons in employee motivation: A minor tweetstorm erupted yesterday over video of eight Chinese bank employees getting spanked for poor performance. I try to stay on top of innovative management practices, but I admit I was surprised. The employees were made to stand in front of 200 coworkers and confess why they had fallen short: “I did not coordinate with my team,” for example. “I lacked courage.” Then the trainer, wielding a large, flat stick and shouting “Get your butts ready!,” walked down the line whacking each one hard; he turned back and repeated the process a total of four times. After that (not on the video), the women’s hair was cut and the men’s heads were shaved.

Two bank executives have been suspended by regulators, though the trainer said he had been using this technique “for years.”

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