Devil’s advocate might have prevented Haggen mess

By James McCusker
For the Bellingham Business Journal

During Pope Francis’ trip to the United States he completed the canonization of Junipero Serra, the 18th century Franciscan friar who established nine of the missions whose names and locations still grace California’s geography.

Within the Catholic Church the canonization process confers sainthood on individuals who meet certain religious criteria. For centuries the qualification process bore a close resemblance to what we would recognize as court proceedings — including advocates presenting evidence and arguments for and against canonization in order to determine the truth. The cleric appointed to present the case against canonization became known as the “devil’s advocate.”

The position of devil’s advocate was eliminated in 1983 when the canonization process was restructured, and the responsibility for evaluating all evidence was absorbed by a single advocate. The change paved the way for a more timely consideration of candidates but the idea of appointing a devil’s advocate for important decisions has not disappeared entirely. Instead, it may be finding its new place in the secular world of business and economics.

Alfred P. Sloan, for whom MIT’s business school is named, was chairman of General Motors as it grew to be the largest company in the world. At one point after discussing a strategic decision with his advisers, he asked, “Should I assume, then, that we are all in agreement on this?” Everyone affirmed this, and then he announced, “Since we are all in agreement, we will continue the discussion next week.”

Sloan clearly recognized the value of a dissenting voice in decision-making. And he also knew the risks and consequences of advisers telling the CEO what they think he or she wants to hear.

In our workplace quest to, in Johnny Mercer’s words, “accentuate the positive; eliminate the negative,” we have undervalued dissent. More particularly, we consistently undervalue those in management who are able to express reasoned dissent during the decision-making process and still pull their oar with the team once the decision is made.

Today’s business management has a genuine need for a devil’s advocate, even though most firms do not realize it yet. The need is especially intense when enterprises are making bet-the-company decisions.

The recent Haggen Food Stores saga of high-speed expansion through acquisition, followed by litigation and bankruptcy — all in a period of about six months — may provide just the sort of awareness-raising example that we need.

If any company ever needed a devil’s advocate it was Haggen Food and Pharmacy. It had been a successful, regional chain of 16 supermarkets and 2 pharmacies headquartered in Bellingham.

A proposed merger of two other chains, Albertsons and Safeway, provided what looked like a windfall opportunity for Haggen to expand: a forced sale of some Albertsons stores. The Federal Trade Commission would not approve the merger unless Albertsons divested itself of stores in some markets. Haggen ended up buying 146 stores, most of which were located in Southern California and Arizona.

In a remarkably short period of time, what Haggen believed to be a windfall opportunity had morphed into a windfall for lawyers. After trading accusations of fraud, Haggen and Albertsons filed lawsuits against each other in September, and a matter of days later, Haggen filed a bankruptcy petition under Chapter 11.

Any decent devil’s advocate would have made clear that the odds were against Haggen’s success from the start. Most mergers and acquisitions fail to live up to expectations and are disappointments, financially and strategically.

The acquisition of 146 stores by an 18-store organization also presented a serious question of digestion. Companies consistently underestimate the strain that any sort of acquisition puts on management as well as on financial and information systems. An acquisition that instantly swells a company to nine times its current size multiplies the strain.

In addition to this strain, the newly acquired stores were in a distant, highly competitive market that was very different from Washington state. It would take time to get used to.

The key to the accelerated timetable of disaster, though, was undoubtedly cash flow. Most acquisitions, even the disappointing ones, take a while to fail…unless cash flow doesn’t live up to its forecasts. The financial data provided to Haggen on the acquired stores’ operations was possibly inaccurate or inadequate, or there simply was no devil’s advocate to foresee the problem. Supermarkets are low-margin, high-volume businesses, and the cash flow forecasts have to include a cushion for any dips in sales due to the name change, management changes, or marketing miscues.

A strong-voiced devil’s advocate might have prevented the disaster from happening at all, since clearly it was a long shot from the start. Businesses that want to learn from Haggen’s experience might start by encouraging thoughtful dissent, and cultivating a devil’s advocate, to sharpen up their decision-making process.

James McCusker is a Bothell economist, educator and consultant. He also writes a column for the monthly Herald Business Journal.

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