Will Daimler Spin Off Chrysler?

The business press is full of Chrysler's restructuring today. But if you're not one of the people facing a lay-off in a hurting industry, an even more interesting bit of news is that the Daimler CEO is considering spinning off Chrysler. It was in 1998 that the German company picked up the American auto manufacturer, so this might not even make a ten-year run. Someone badly wanted the deal all those years ago, spending a reported $25 million on a PR blitz - apparently in one day - according to a New York Times story from 1999. (You have to be a Times Select member to get the full text.)

Yet cheerleading does not a good business deal make. A strategy+business story suggests that the two companies had completely incompatible business models, each of which was successful when left alone. By 2005, the Daimler CEO was gone. Many academic studies have suggested that the failure rate - measured by financial promise to shareholders - for mergers and acquisitions could run anywhere from 50% to 70% (here is a collection of links to studies). So why do CEOs continue on a path of high risk? I think saying ego is too easy and a bit deceptive. People in upper management tend to be driven by wanting to come out big winners, so, yes, bigger is often better. The more subtle dynamic, I expect, is that the CEOs figure they'll be the ones to beat the odds. That's where the real danger of ego enters - not in wanting to be on top, but in believing that you're the one that can do it. Certainly that arrogance is necessary to success, but so is some humility and the willingness to listen to those who disagree. (Certainly there must have been people at both Daimler and Chrysler who smelled disaster.) Business is always a balance between taking risks and mitigating their effects, making it like controlled gambling. CEOs and board chairs should always remember that in a large corporation, the money being risked is someone else's. Maybe that would help bring some of the monetary sobriety so badly needed.