Clem Sunter

Why CEOs fail

2010-08-18 12:05

In his latest book, Jim Collins examines how the mighty fall. I have a crisp answer – because their CEOs fail. Given the turnover of CEOs in South Africa and the number of vacant positions filled by acting CEOs, it is worth listing the deficiencies which lead to failure.

1. Ignorant leadership. One of the worst things a board can do is appoint a CEO solely on leadership skills, but with no previous track record in the industry in which the company does business. It is the reason why so many conglomerates in the previous century performed badly. They had group CEOs who simply did not understand the dynamics of the underlying industries in which they were invested.

This did not matter when the business units were doing well. However, when something went seriously wrong, they did not have the experience to correct it. In sport, you would never make the manager of the national cricket team manager of the national soccer team – however good a leader he was. The idea is just as ridiculous in business.

2. Maverick leadership. A CEO who does his own thing without consulting the board causes divisions at the highest level, where the principal strategy of the company is determined. The company is doomed because strife at the top confuses operating management and employees. They don’t know whom to follow.

3. Weak Leadership. A weak and indecisive CEO nullifies all the key performance indicators, budget numbers and targets. The plans of the company look good on paper but execution is lacking. Absence of accountability is a poison that leaks through the entire hierarchy. For results in either a centralised or decentralised management system, staff have to know that certain targets are absolutely sacred – not just in production and profit but also in the fields of health, safety and the environment. Break them and you’re out.

4. Corrupt leadership. This is the worst fault of all as everybody takes a cue from the boss and starts demanding fat, brown envelopes. The accounts are falsified to cover losses and shareholders only find out the true position after the horse has bolted.

5. Invisible leadership. CEOs who spend too much time in their ivory towers, surrounded by close confidantes, gradually lose the respect of their followers. They are perceived in the same light as generals who never visit the battle front. Employees cease to walk the extra mile even when they see competitors catching up and overtaking the company for which they work. They shrug their shoulders.

6. Partisan leadership. Nothing makes the talent walk out of a company quicker than the feeling that the top jobs are reserved for the mates or relations of the CEO. A consequence of this deficiency is the difficulty with which family-owned businesses make the transformation into listed entities where merit is the sole principle behind senior appointments.

7. Arrogant leadership. Obviously companies have to have a vision guiding them, but when the vision is elevated into a religious creed, the risks of falling from grace rise exponentially. How many CEOs have sought an uncritical alignment to their vision and thereby have led the company’s employees collectively over the edge of the cliff? I call them hedgehogs on account of their fixation on the great idea and unwavering confidence in it.

Survival of any business in the longer term depends on its ability to adapt more swiftly than its competitors to changes in the environment. The belief that you as the CEO have more control over the future than you really possess is deadly. It ensures the company’s premature extinction either by closure or takeover.

There you have it. You may wish to add to my list; but it would be interesting to know whether, based on my criteria, you would give a clean bill of health to your CEO. Or if you are a CEO and look into the mirror, how would you score yourself? Honestly!

Send your comments to Clem

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