Posted 06:09 AM by Tom Berry & filed under business .

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This month sees the 45th anniversary of the release of Francis Ford Copolla’s seminal film, ‘The Godfather’. Based on the book of the same name by Mario Puzo, the story owes more to the strategy and political texts such as Sun Tzu’s ‘Art of War’ and Machievelli’s ‘The Prince’, than it does to the pulp fiction and film noir of the preceding years.

Back in the noughties, I wrote a cover story for Financial Director magazine, on the way ‘The Godfather’ can be read as a management text. A decade on, I hope you forgive me reposting this article here as I think in these days of political intrigue and austerity, the book still offers brilliant insight into how to run a business, build a brand and communicate your messages clearly, cleanly and decisively.

Bullet Points
Mario Puzo’s ‘The Godfather’ is one of the most unexpected books on management practice and corporate governance. In between the violence, murder and decapitated horses, it describes the establishment of the business empire of Don Vito Corleone, a poor Sicilian immigrant in New York. Don Corleone uses strong man management skills – and a little boardroom bullying – to build the biggest olive oil company in the US, with interests in gambling, racketeering and corruption off-balance sheet.

But his competitors start to team up against him; a threat from overseas puts pressure on him to change his business model; some of his staff turn traitor; his business loses market share; and he has to find a successor to take over his empire, but the quality of management available is disappointing. No one would suggest that garrotting competitors or shooting senior managers who are poached by rival companies is good governance – no matter how tempting it may be. But ‘The Godfather’ does provide some useful reflections on corporate life, the way to maintain a position as market leader and how to manage a brand.

Understand the market
“Like many businessmen of genius, Vito Corleone learned that free competition was wasteful, monopoly efficient. And so he set about achieving that efficient monopoly… warehouses were burned and truckloads of olive-green oil were dumped to form lakes in the cobbled waterfront streets.”

While many of Corleone’s methods would be considered unorthodox in mainstream corporate business, the central premise of ‘The Godfather’ rings true for many large businesses. Corleone establishes a successful company, concentrates his efforts on becoming market leader and maintains that position by investing in profitable products, and by outmaneuvering competitors through price cuts and forcing rivals to merge with his own company.

Don Corleone is, in essence, a retailer. He imports olive oil to sell into a competitive market, but he doesn’t believe in advertising and his olive oil is no better than his competitors’. So Corleone encourages loyalty through his own strong personality and creates a brand his customers feel they have a stake in. By buying Corleone products and protection, customers become part of the ‘Family’. It is un-Sicilian (and unwise) to buy anything other than Corleone’s Genco olive oil.

The Corleone family is a conglomerate with substantial sideline interests in gambling, which is a lucrative business to have in post-war New York. Gambling and numbers rackets is the Corleone cash cow, making big profits which can then be poured back into long-term investments – such as bribing judges and senators.

The businessmen of the Don are also good at making new opportunities out of existing businesses. Don Stracci operates a fleet of freight-hauling trucks and makes a fortune because his trucks travel heavily overloaded. So while Stracci’s trucks help ruin the highways, his road-building firm repairs the damage. “It was the kind of business that would warm any man’s heart – business of itself creating more business.”

But, while Don Corleone is the most successful businessman in the market, he faces competition from other Families who carve up territory and business interests in regions of the city. Where boundaries or business interest overlap, friction occurs that usually ends up in a hostile, bloody takeover battle. To prevent costly wars, the heads of the rival businesses hold “extraordinary meetings”, often in the boardroom of a bank. “Nothing was more calming, more conducive to pure reason than the atmosphere of money.” As in any business, markets react badly to the unexpected bad news. At all cost, heads of business should avoid confrontation (“blood costs too much money”) and follow the Don’s advice borrowed from Sun Tzu’s Art of War: “Keep your friends close, but your enemies closer.”

Internal controls
Don Corleone wouldn’t win any awards for external communication or corporate social responsibility, but a solid corporate hierarchy, as well as slick internal communication, is the key to his operational success. Along with his Consigliori, the finance director figure of adopted son Tom Hagen, Corleone establishes a system of reporting lines so he is aware of everything happening in his business. But for this to work, he sets up his group structure. He makes his earliest business partners – Clemenza and Tessio – operations managers with the promise that one day they can demerge from the business and start their own Families. In this way, he ensures internal control as well as loyalty.

Clemenza and Tessio are given the title Caporegime, or captain, and the men who work for them the rank of soldier. He then put layers of insulation between himself and the operations, so when he gives an order it is to the Consigliori or to one of the caporegimes alone. He can wash his hands of any responsibility for what happens next. Don Corleone then sends Tessio to look after Brooklyn while keeping Clemenza under his thumb, realising that Clemenza is the least intelligent of his managers and in need of tighter control. He also split Tessio off from Clemenza and forbids the two from associating even socially. “Vito did not want his two caporegimes to have the opportunity to conspire against him.”

In effect, Don Corleone creates two operating divisions of his holding company. He then drives a wedge between them and ring-fences them so either can be disposed of if needed. The competition between these two companies increases performance, drives up profits and ensures the senior managers feel they are in control of their own businesses.

Despite its rigid structure, the Corleone empire is not hampered by bureaucracy. Don Corleone is “a man who insists on hearing bad news at once” and when his eldest son Sonny brutally attacks his brother-in-law in the street when he should be hiding from the Tattaglia Family out for revenge, the Corleone machine swings into action. A junior Corleone employee at least six layers removed from the top management witnesses Sonny’s actions and calls his divisional operations manager Rocco Lampone, who then calls his caporegime Clemenza, who in turn calls Tom Hagen. Hagen then sends a fleet of cars to protect Sonny on his way back to Corleone HQ – all within a few minutes. The Tattaglias, on the other hand, are slow to respond to the opportunity of nailing Sonny. “The Tattaglia Family has not streamlined itself for war; the contact still had to go all the way through the insulation layers before he finally got to the caporegime who contacted the Tattaglia chief. By that time, Sonny Corleone was safely back in the mall.” The Tattaglias lost a business opportunity because of poor internal communication and complicated reporting lines.

Business opportunities
The Corleone empire has to change. Society is becoming less tolerant of organised crime and money is moving out of New York to Las Vegas and Miami, burgeoning cities where the biggest profits will be made in the future.

Don Corleone plans to re-engineer his business model – sell off the olive oil business and allow Clemenza and Tessio to demerge from the business and start their own Families in New York. Corleone embarks on an ambitious five-year plan, starts to buy stakes in Las Vegas casinos and prepares to take his business completely legitimate.

To facilitate a culture of change, Corleone encourages his most senior managers to
explore any new business opportunities that arise. When Tom Hagen is negotiating with movie producer Jack Woltz (the man who famously finds the head of his prize racehorse at his feet in bed), Hagen assesses Woltz’s management style and spots an opportunity. “Was it possible that a man who acted this stupidly could rise to the head of a company worth hundreds of millions? That was something to think about since the Don was looking for new things to put money into, and if the top brains in the industry were so dumb, movies might be the thing.”

But before any of Corleone’s plans can be put into place, the market is turned upside down by a Sicilian called Sollozzo, also known as ‘The Turk’, who brings drug trafficking to New York. In a dotcom-esque boom, all the major Families reorganise their business around selling the cheap drugs that will pour into the city from overseas and Don Corleone comes under pressure from his own managers to join the new economy.

“The other Families will become stronger than ours,” says Clemenza. “Eventually, they will come after us to take away what we have. It’s just like the countries. If they arm, we have to arm. If they become stronger economically, they become a threat to us. I think we have to have a piece of the action or we risk everything we have. Not now, but maybe ten years from now.” But even though many of Corleone’s senior managers secretly want to get into the drugs business, most of them stay loyal to the Corleone company strategy. Don Corleone stands firm in his opposition. Drugs, he says, are tempting because – like all faddish businesses – it promises to generate millions in the short term. But if everyone is competing in a new and unproven market, all-out war between rival Families is bound to happen, and the market will collapse. “This drugs business will destroy us in years to come.”

Secretly, Sollozzo is aided by Don Barzini, the second most powerful Mafia businessman in New York. Barzini “was a man much like Don Corleone, but more modern, more sophisticated, more businesslike.” And with Corleone out of action recovering from the six bullets Sollozzo puts into him, Barzini’s business style begins to win through. Corleone stock is out of fashion and the Family must adapt, die fighting or wait for its competitors to self-destruct from their own bad business decisions.

Human resources
The best businesses have the best staff and the Corleone management are constantly preoccupied with getting the right people for the job – employees who are intelligent, loyal, can be trusted to use their initiative and who are not reckless.

When Clemenza’s second in command, Paulie Gatto, turns traitor it is a serious problem. Losing a key member of staff to a rival company is bad for business and suggests the Corleone Family doesn’t offer the right incentives to its managers. (Later, Carlo, the Don’s son-in-law, turns traitor because he feels he isn’t trusted to take a senior role in the business and looks elsewhere for a better living).

Clemenza must also show that he can exercise better judgement and promote a more suitable junior manager to fill Gatto’s shoes. Don Corleone has a similar problem – one that eventually brings his company to the brink of collapse. The Corleone empire is built on the reputation of one man. Like Berkshire Hathaway is Warren Buffett and Microsoft is Bill Gates [or, at least was], Don Corleone’s business is, in his customers’ and suppliers’ eyes, a one-man show. When the Don is put out of action, the market value of the Corleone empire halves and the business is left open to hostile takeover from the other New York Families. The skills balance in the top management is upset where the strategic genius of Don Corleone was previously offset by the financial and legal skills of Tom Hagen and the operational expertise of Sonny Corleone and the two caporegimes. When Corleone is shot, the business is left too operations focused, and Sonny’s temporary, aggressive stint as managing director starts a bloody and expensive war between the rival Families.

Despite being a private company and a family business, the position of Don in Corleone Inc is not necessarily passed down from father to son. Clemenza, Tessio or even Tom Hagen could have a shot at the top job if it became available, but none fits the bill. Corleone tries to promote Sonny, giving him several tests of leadership but finds he is too brutal and aggressive to make a good leader.

The problem of Corleone’s succession planning comes to a head when Sonny is shot to death by Barzini. It is left to Michael, the Don’s youngest son and the least interested in business, to take the top job. Michael is chosen because he is more tactically aware and open to reason than his elder brother. He is a leader who persuades people without resorting to threats if none are needed. However, natural ability is not enough on its own to take over the business and Don Corleone makes sure Michael spends three years learning the Family business, putting in long hours of training with Tom Hagen to ensure he can handle the business’s finances, and training with the Don concerning strategy and tactics. Only then is Michael handed full control of the business and Don Corleone goes into retirement.

Taking action
Blood, whether on the boardroom floor or spilt in battle, is always a last resort in ‘The Godfather’, but, as Clemenza says, every 10 years or so it is necessary to get rid of the ‘bad blood’ and shake up the sector.

This creates a cycle of consolidation, followed by several years of demergers, and management buy-ins and buyouts. Corleone’s problem is the risk of losing market share as too many businesses are operating in his market. He knows he can’t win if he continues to fight his competitors in the open market and so shuts down some of his operations. He gears up his business by investing heavily in a secret operations division headed by Rocco Lampone. He then waits for the opportunity to take over and asset strip the bloated and unfocused businesses of his competitors.

For the Corleone Family, everything is business – nothing is personal. The shooting of Don Corleone and the death of Sonny are business problems that have to be solved. When Tessio betrays Michael, his last words are, “Tell Mike it was only business.” And when Michael kills the heads of the Five Families in the climax to the book, he is not exacting revenge; he’s squaring “Family accounts”.

The Corleone Family makes business decisions in a reasoned, informed way. They do not panic when the market turns against them. In the book, men like movie producer Jack Woltz and Don Tattaglia are considered bad businessmen because they let their emotions show and allow personal grievances to cloud their decisions. Don Corleone, on the other hand, commands respect because he is seen to be “a man of reason”. He will negotiate but not capitulate. “When he became a Don and asked opponents to sit down and reason with him, they understood
it was the last chance to resolve an affair without bloodshed and murder.”

When Al Capone sends his henchmen to kill the Don, Corleone disposes of the threat by killing the gunmen but then suggests a partnership with Capone rather than taking further revenge. And Michael is quite prepared to allow the other Families to take over some of his businesses through force after his father dies so they overstretch themselves and he can exploit their weaknesses at a later date.

At the end of the book, the Corleone Family re-establishes itself as the pre-eminent force in underworld business in New York through a mixture of strong leadership, good communication skills, strategic thinking, competitor analysis and the ability to spot business opportunities. The Corleone empire becomes the place to work.

“With one savage attack, Michael made his reputation and restored the Corleone Family to its primary place. He was respected not only for his tactical brilliance but because some of the most important caporegimes in the Barzini and Tattaglia Families immediately went over to his side.” Now Michael is the Don.

This article was first published in March 2004 issue of Financial Director magazine. Huge thanks to my old editor Andy Sawers for persisting in convincing me it was a good idea to write it.