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How to Re-Invent a 60-Year-Old Company

Replacing a founder-entrepreneur and transforming the business at the same time is no small matter.

Harman CEO Dinesh Paliwal, 57, advises CEOs who find themselves in this position to “never completely ignore the founder. Keep him informed. Make him feel he is part of it. If you abruptly cut the founder off, then you invite trouble or a boardroom coup because an outgoing founder has board members who love and adore him.”

“Never completely ignore the founder. Keep him informed. Make him feel he is part of it.”

For Paliwal, who spent 22 years with ABB, the Swedish-Swiss-based $50 billion global energy and industrial conglomerate, taking over from a founder CEO was especially demanding. Having co-founded Harman Kardon in 1953, a company noted for its premium audio products, Sidney Harman was struggling with more than a succession problem. He had sold his company to Beatrice in 1976 only to buy it back in the 1980s, then face competitive turbulence and the need to revamp operations to get it back to fighting trim.

Two different CEOs came—and went. Each clashed with the founder and his board, which was comprised of numerous friends of Harman’s, including, at one point, his daughter. Paliwal, who had worked and lived in six different countries, including the U.S., China, Switzerland, Singapore, Australia and his native India, was brought in first as vice chairman prior to becoming CEO in July 2007. “When I was first interviewed,” he recalls, “I told Dr. Harman that I needed room because I’m decisive. I don’t want to be second-guessed every day.”

Around this time, Goldman Sachs and KKR had made an $8.3 billion offer for the company, only to pull the plug when internal problems proved bigger than they were led to believe. At the time, credit markets were also drying up. Faced with an existential crisis, the board, including Harman, turned to Paliwal asking, “What will it take to keep you?” “It will take a few years, but I will fix it. However, I need the freedom to choose my team and do the right things,” he responded.


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