Peter Cuneo, former CEO of Marvel Entertainment and the man behind seven corporate turnarounds, on what really goes into resurrecting a failing company.
In The Amazing Spider-Man 2, Peter Parker, Spider-Man’s nerdy alter-ego, says, “I like to think Spider-Man gives people hope.”
In real life, Peter Cuneo gave Marvel Entertainment, the company behind Spider-Man, hope in 1999. At that time, Marvel, which owns 8,000 fantasy characters and superheroes like Spider-Man, Iron Man, Wolverine, Captain America, the Avengers and X-Men, was just emerging from bankruptcy and its stock price was languishing at 94 cents a share.
After taking over as CEO, Cuneo unleashed a series of measures designed to extract more value out of the marquee characters owned by the company. He adopted a licensing model for movies, television and consumer products; divested some loss-making businesses; reorganized the company around five operating units; and reduced operating costs.
As a result, the company was sold to Walt Disney 10 years later for a whopping $4.5 billion, and at that time, the share price was $54.
In his professional career, Cuneo has engineered, not one, but seven turnarounds of entire companies or divisions at Clairol, Black & Decker, Remington and, of course, Marvel.
During a recent visit to Beijing, the mild-mannered and unassuming Cuneo, who is now the Chairman of Valiant Entertainment, sat down with CKGSB Knowledge to share his experience in company turnarounds. The bottom line: it is a lot of hard work. As Cuneo says, “When you look back, it’s romantic and fun, but the day to day was not so much fun till you really feel the turnaround was done.”
Q. From your experience, what leads most companies to the brink in the first place: poor management calls or more fundamental issues regarding the industry, business or products?
A. My experience in the businesses I’ve done turnarounds in—consumer products, media and entertainment—it’s almost always very poor leadership. The leadership, for whatever reason, is just not willing to make the changes, and the hard decisions that need to be made as a business and an industry, and as competition evolves. Either they just don’t understand the change or perhaps it’s emotionally difficult to make a lot of people unhappy, but making radical change in a business is all about, unfortunately, making a lot of human beings unhappy.
Q. As someone who’s been in that situation over and over again, what are your thoughts on what CEOs in similar situations ought to do first: focus on the hard numbers and financial targets first or look at the soft issues?
A. You have to do both. Obviously you want to understand the business, and the language of business, the blood flowing through the veins of a business, is the numbers, the financials, so, of course, you need to understand that.
But in turnarounds, you often find that the culture is completely wrong. The company may or may not be bankrupt financially, but the culture is bankrupt. It’s one where the organization is used to losing, failing [and] underperforming. You have to change that, you have to give the organization pride.
There are a lot of ways to do that. One way is to simply be honest with the organization, be consistent in how you communicate and what changes you want to make. If you want to establish a new culture, back it up with actions. Talk is very simple, but most employees will not believe you until they see you behaving in a way that suggests that you really will act on the things you’re saying. So if you say that lazy people will no longer be tolerated, you have to back that up by eliminating jobs when you see it.
Q. In such situations, time is a luxury and changing the corporate culture is a long drawn process.
A. Sure. I think you start on the culture immediately. In a number of my turnarounds one of the problems that existed was that these businesses—consumer products, media and entertainment—are highly dependent on new products. But when you go to a company, you find that nobody wants to work on new products because they believe that it’s very risky.
To change that, tell people it’s okay to fail. Statistics show nine out of 10 new products will fail. You want to have a better average than that if you’re a leading company, but you will have failures, and that’s okay. But [employees] won’t believe you until you back it up. One of the things I used to do was that when we had a successful new product, I would hand out checks to all the people that worked on it at an all-employee meeting. It would be a team consisting of members from all the different functions: sales, marketing, manufacturing [and] technology. People start thinking, ‘These people are getting checks for success—yes, we’ve had some failures but it doesn’t seem like anybody’s in trouble’.
It takes time: you cannot change a culture in a week or a month. If you’re trying to work on a multinational company it could take years. But as long as you’re demonstrating very publicly in front of all the employees what you’re talking about and supporting the new values that you’ve been espousing, I think you’ll do fine.
Q. You are best known for the Marvel turnaround. When you took over the company was deep in debt and the share price was worryingly low. Can you walk us through the situation you encountered when you first stepped in, the challenges and the key strategies you identified?
A. Marvel was a public company on the New York Stock Exchange, and it really was a toy and comic book company. The whole comic book industry had created a collectability craze. Basically telling comic books fans that all these comic books would be worth a lot of money down the road and doing a lot of crazy things to promote them: for example, publishing the comic book with 10 different covers. Eventually the comic book community, the hardcore fans, woke up to the fact that this was not going to be collectible. Early in the 1990s the comic book business and all collectible business started to crash.
One of the problems I often see is that the management of consumer companies assumes that their consumer is stupid. That was what was happening here, and the consumer didn’t like it very much when they figured this out. So the size of the business dropped dramatically. Even today, the comic book business is smaller than it was in 1993, in the US. The company had a lot of debt and couldn’t pay its interest, and basically that resulted in the bankruptcy.
Also, during that period there was a lot of cost cutting. In creative businesses, in entertainment, your real power comes from creative people. In comic books, it’s the writers, editors and illustrators. If you abuse them because you’re cost cutting and they feel that they’re not appreciated—this is what happened at Marvel—they will leave. So now you have another problem: the quality of your books is dropping dramatically.
In entertainment, content is what you create: a script for a motion picture, the layout of a comic book, the industrial design for a toy. What you want to do is connect your content with other people’s engines. It’s like an engine and the gas, you’re creating the gas, a high octane gas. Lots of people have engines: television stations, movie studios, retail stores. You want to connect your content with the best engines. But if your content is no good, they’re not interested because their engines won’t run very well. So abusing talent is a major mistake.
So it’s all about, in many ways, the obvious problems. You’re starting to change the culture. You’re trying to attract this high-quality talent that former management alienated. It’s a very important part of it, as well as managing the numbers.
Marvel was in bankruptcy [and] came out of bankruptcy when I became CEO. Going through bankruptcy is like going through chemotherapy. You are supposedly cured but you are very weak. The company has lost all its hair. The best people have left. You have a talent drain.
Very often coming out of bankruptcy the capital structures are not right. They are a function of the pulling back and forth of the financial interests in a company and not necessarily designed in the best interests of the new version of the old company. So you have to cope with that as well.
At Marvel, though, it was pretty straightforward. We had to improve our comic books and we decided that the best way to re-launch our characters on a global basis, after they’d been damaged in a very long bankruptcy, was [through] motion pictures. Still today I believe motion pictures create the most excitement around a particular property than any other form of entertainment.
Q. What kind of role can the board play in a turnaround? You as a CEO are under pressure to deliver the numbers and the board is putting even more pressure on you, so how can that role be constructive?
A. I’m a big believer in having active boards. A lot of CEOs don’t want active boards and, in fact, really don’t want boards to know much about what’s happening in the company. My attitude is very different. We had a great board at Marvel, very accomplished executives: experienced turnaround people [and] also [people] from entertainment and so on. We were getting world-class help for very little money—you don’t pay the board anything close to what they’re really worth. So I wanted them to be involved directly with the senior executives. They were there to give advice, not make decisions, of course. And that was very useful in difficult times, when you’re trying to turn around a company.
Q. Should CEOs in such situations actively ‘manage’ the board, so to say?
A. Of course. The CEO reports to the board, so to say the CEO manages the board would be a little misleading. But manage in the sense that you want the board to be very aware of what the problems are, what’s important. You want to have a very good discussion about strategy and strategy going forward. If you have a good board, you’ll get a lot of strong opinions, some of them will differ with each other. I would much rather have people differing so we can really think about the alternatives than have everyone agree with me. That is actually the worst possible situation, when people say you’re absolutely right about everything when you know you’re not. I was very much dependent on the board for very sage advice.
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Q. How do you handle tough situations at a time when morale is already low, people are sensitive, and you are also trying to build trust?
A. You want to be honest with people. When you come into a company where everybody knows the company is in trouble, they’re worried about their jobs and there have probably already been layoffs even before you came. When they ask you, ‘are there going to more layoffs?’, be honest. The minute I say we won’t have layoffs, I’ve lost the trust of all employees. Most people, even hearing potentially bad news, are a little more at ease than if they think you’re kidding about something.
I often had sessions with all employees, or small groups, where they could ask me direct questions. The first couple of months most employees are too afraid to ask you anything, but after a while when they hear from other people who did ask questions that didn’t come back to haunt them, [or] expressed certain opinions and weren’t suddenly out the door, then it gets a lot easier. People appreciate honest answers. That’s part of changing culture: being honest and talking.
One of the changes was to make an atmosphere where it’s okay to admit they have problems and challenges in [their] jobs. We can solve them together in 99% of the cases, but we need to know about them. What used to keep me up at night mostly was not problems I knew about, [but] other problems that I maybe didn’t know about.
Q. What about the fear of failure and unrealistic expectations? Maybe boards think that you’ve turned so many companies around so you’ll come and do some magic…
A. I’m always very careful to never think ‘I’ve seen it all’ because every situation is different and you have to be prepared. There are always new challenges and lessons. If you get smug or arrogant about your skills in this area, you’re going to be in trouble.
Q. What is your advice for people in similar situations?
A. First of all, unless you’re thrown into a turnaround, you really have to think whether turnarounds are right for you, whether you’re suited emotionally to take these on, because they’re not for everyone. The ones who do take these on are the weird ones. You have to think about the emotional price you may pay. I’m an operator—there are lots of people who [are doing] other things in turnarounds. They may be helping financially restructure a company, they may be consultants or temporary CEOs, they may be accountants, they may be lawyers. [They] help [in] a turnaround, but they don’t live with the pressures day to day the way we operators do.
When you’re in a turnaround every day, people are unhappy, and people are unhappy with you every day even if they don’t know you because you represent change. In extreme cases, banks are unhappy, suppliers are unhappy because they’re not getting paid, customers are unhappy because your products aren’t quality. You have to be prepared for that.
Having said that, on the rewards side, you can make a lot of money if you’re successful. So it’s all about that and understanding going in. It’s not romantic. It’s romantic after the case. Yes, Marvel went from bankruptcy to being sold to the Walt Disney Company for $4.5 billion 10 years later. So when you look back, it’s romantic and fun, but the day to day was not so much fun till you really feel the turnaround was done. In a big company it usually takes a minimum of three years. Until you know that, if you’re run over by a truck crossing the street tomorrow, the company will do absolutely fine without you.