CEOs and competitive Arousal !

Few days back, The Economic Times had an interesting story on the front page on the Bharti-MTN deal. The writer’s point was how Bharti’s Sunil Mittal was back pursuing a deal he had to give up last year. The most interesting thing about the story was a Mittal quote that came lower down in the fourth paragraph. In that, a quote recounted by the CEO friend it was made to, Mittal says how winning MTN had become “a question of my ego”.
If you look at it, these are just five words. But what a window it offers to the mind of one of India’s most successful entrepreneurs. A 100 million subscribers on, Mittal is still in, what you could call, a state of ‘competitive arousal’.
It’s actually the subject of an article that Deepak Malhotra, Gillian Ku, and J. Keith Murnighan wrote for the Harvard Business Review last year. Their contention is simple. When a CEO is in a state of competitive arousal, he’s more prone to make the sort of (rash) decisions he would not otherwise.
But what leads to this state of competitive arousal? According to Malhotra et al, there are primarily three reasons.
1. the CEO is going head-to-head with one or two rivals and feels compelled to beat them to the target.
2.when there’s a stiff deadline, self-imposed or otherwise, that the CEO is trying to meet. In that situation, he’s unlikely to weigh all the pros and cons.
3. presence of an audience. When people (especially the ones with pens and cameras) are watching, an M&A can spiral into a gladiator sport. The CEO is under tremendous pressure to win at any cost.
In the case of Bharti-MTN, where Anil Ambani’s Reliance Communications was a rival contender last year, Dalal Street’s initial reaction was to beat the stock down. But some considered opinion now seems to suggest that the deal, if it goes through, may not dilute Bharti’s earnings per share to any great extent. That said, it’s also likely that Mittal is forced to sweeten the deal for MTN shareholders; quite a few of them are grumbling about what they are getting. At what point Mittal says ‘no more’ to them is a question that’ll get answered only closer to the July 31st deadline.

Mittal, of course, isn’t the only CEO who’s getting tested this way. Ratan Tata ended up paying $12 billion for Corus—34 per cent more than the initial offer price. A fortnight after Tata sewed up corporate India’s biggest cross-border deal, Kumar Mangalam Birla announced he was buying Novelis for $6 billion. In hindsight, both these deals look way too expensive, but it’s only Tata who has admitted that the Corus buy (not to mention Jaguar Land Rover) happened at “an inopportune time”.
In the long term, each of these CEOs may be proved right, but there’s no doubt that their companies will face some pain till that time. In India so far, we haven’t had a deal that’s been a complete dud (Dr Reddy’s Betapharm buy, though, comes painfully close). But as more and more CEOs seek to expand their business empires beyond India, an ill-conceived AOL-Time Warner kind of merger may well happen.
Malhotra et al suggest three ways in which CEOs can avoid getting into the competitive arousal trap. One, bring not your heart but head to the deal. That means keeping away from negotiations the CEO who thinks he must win at all costs. Two, do away with any unreasonable timelines. And, three, let not the deal become one man’s glory game; instead, deflect media attention to a team. That way, the deal doesn’t become a matter of prestige for the CEO.
That said, one cannot be ordinary and hope to achieve extraordinary results. Sunil Mittal is what he is today because he pursued big dreams and took the sort of risks a more ordinary CEO would have shied away from. The secret to success, then, is in knowing how much risk is too much. Unfortunately, there’s only one way to find that out. And that’s to do the deal.