Control freaks or trust in people?

on the implications of this week's demerger announcement by ITT break itself up

This week ITT, the sprawling US-based international conglomerate, boldly decided to break itself up into three parts. It is rightly hailed as providing a historic lesson for giant companies. But ITT's biggest mistake was not the obvious one that it had over-extended and needed to dismantle itself, but that it became so obsessed with financial controls that it gave up being good at any of the legion of things it did.

At its peak in the early Seventies, (when I wrote a book criticising it) ITT was an absurdly disconnected mixture of 400 businesses across the world, from hotels and insurance to telephones and cosmetics. Their only real link was with the ambition of their boss, Harold Geneen, who was obsessed with expansion.

He was a business imperialist who loved power for its own sake: he much admired the British empire, he told me, and deeply regretted its break- up. And he rashly extended his commercial power into political power when he began using his lobbying clout to pressure the American government and conspired with the CIA to bring down President Allende in Chile.

It was his political ambition that first mobilised the US Congress against him. "Have we reached a point in our society" asked one of his chief critics, Senator Hart, "where there has been permitted to develop a private concentration of power which, because of the enormity of their reach, makes impossible the application of public policy to them?"

After Geneen's full machinations in Washington and Chile were revealed to Congress in 1972, ITT was never the same again: its international credibility was battered, and its share price was reduced by the "scandal discount".

But its commercial failure was the result of the exorbitant cost of controlling it. For Geneen was above all a classic control-freak who believed that a big company must be subject to relentless financial oversight which could effectively by-pass and replace the human element.

His methods depended on statistics and fear. When I met him, he seemed to me like a gnome in a fairy-tale, spinning threads into gold and weaving spells over his underlings. He devised intricate accounting systems to control and motivate them, and kept them dependent through constant uprooting and travel.

Every month he summoned his international managers to a dreaded inquisition in Brussels. When I infiltrated one meeting I saw them all sitting round a huge horseshoe table in a darkened room, confronting Geneen's owlish gaze, while a big screen displayed their financial statistics.

A sharp arrow would pause at a significant figure. If there was a major loss, or a serious discrepancy, Geneen would coldly question the manager in charge, and sometimes humiliate him in front of his colleagues. It made some of them physically sick. But it provided the control, the concentration and discipline that Geneen demanded: "I want no surprises."

The human costs were appalling: Geneen demanded total priority over family and community, and this left a wake of breakdowns and divorces. When I asked one ITT-er why he left he replied simply: "I want to rejoin the human race."

At the time the ITT managers were much admired elsewhere: they earned higher salaries and gained more experience, and other companies followed their techniques.

But it was the obsession with controls, as much as the diversity, that made ITT unworkable: it was simply not practicable to rule such a wide empire with such lack of human trust.

Financial expertise overrode all other skills and criteria - including respect for the products. The engineers, hoteliers or researchers who represented all kinds of different values were all subject to the same brutal yardsticks. Not surprisingly, ITT products lacked any special distinction.

When Geneen was eventually removed, ITT no longer had the same zeal at the centre, or fear at the periphery. Without his obsession, the empire made little sense, and the cost of controlling it was more obviously extravagant,

Geneen's successor, Rand Araskog, realised that he could not effectively hold all the components together, and began "de-conglomerating". His decision to break up ITT into three separate companies is the logical consequence.

Today the past ambitions of ITT seem obviously absurd, the range of Geneen's empire is discredited, and its disintegration inevitable. But the danger of excessive impersonal controls is greater than ever, threatening the health of many big companies.

Information technology has enabled chief executives to oversee their managers more discreetly, but more effectively, than Geneen's star chamber. And the more they are pressed for higher quarterly earnings, the more they are tempted to control their business through money, rather than through people.

Armed with printouts and spreadsheets, the control-freaks have entered new kingdoms. They can be brilliantly successful in reducing staff, ensuring discipline and maintaining budgets.

Many British businesses, including Barings bank or Lloyd's of London, could long ago have benefited from more effective oversight, and Geneen's insistence: "I want no surprises."

But extreme financial controls still inevitably lead to distrust of all human judgements. And the more the control-freaks move into creative areas, including communications and the media, the more they are likely to neglect the crucial role of human instincts and hunches.

All big businesses will always depend on a balance of financial and human elements, and the arguments about how to run them will never be resolved.

In Britain, Lord Weinstock of General Electric has become the great exponent of statistical controls, while his rival Percy Barnevik, the Swedish boss of ABB in Zurich, insists that he must delegate above all to human beings.

But ITT has provided the most valuable case-history in how not to run a company. And the lesson is the same for companies as for nations: that in the end you cannot effectively motivate human beings through fear.

Anthony Sampson's new book, Company Man, has just been published by Harper Collins at pounds 20.