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WHY DO CEOs FAIL?

Updated: Apr 29, 2018


"Let's see what Fred are thinking about this"


Many independent studies have assessed the percentage of business leaders who fail in their jobs. The consensus is about 50% though some suggest 67%. And it isn’t just leaders who fail. Companies which have been household names go to the wall. Take it a step further - entire industries have failed. And failure doesn’t come cheap. How much higher would overall returns on capital be if just half of these corporate failures had been avoided?


Professor Robert Hogan says “Based on the data, we suggest that two thirds of existing managers are insufferable and that half will eventually fail”. These “insufferable” managers not only cost their companies a small fortune - and can destroy shareholder value - but they can also damage the mental health of their employees and their families, their shareholders and their suppliers. Such things as stress, redundancy and unpaid invoices when companies go bankrupt have a high human cost. Surveys point to about three-quarters of employees being so dissatisfied with their current employer that they want to leave. And this is despite a century of scientific management which has generated enough books to fill the Library of Alexandria. What is going on?



My first motorcycle was this 1919 Sun “Vitesse”. Within 50 years the British motorcycle industry had been wiped out.


My personal view is that, these days, the processes of effective management are understood pretty well. Leadership and creating new leaders. Vision and values. Experience and Resilience. Building teams and developing people. Training, Mentoring and Coaching. Formulating plans. Budgetary control. Defined objectives with target dates. Critical Path Analysis. Discounted Cash Flow comparisons of alternative capital schemes. Post Implementation Reviews. Getting supportive media coverage. Working well with trades unions. Delighting and retaining customers and keeping good suppliers happy and eager for more orders. Utilising Advisors. Applying Quality systems. Having proper job descriptions. Consulting one’s colleagues - as they say, two heads are better than one. Those sorts of things.


But many senior appointments go wrong. Not immediately, because it usually takes a little time. Within about 18 months of appointment it is reported that something like 40% of managers will have failed. Once that failure has become apparent - perhaps red ink on the Profit and Loss Account and the Balance Sheet starting to wobble like a clown on a unicycle - the cause can supposedly be identified. And there will never be any shortage of those who will point the finger of blame and pontificate upon the causes.


Such commentators share an underlying belief that events are the result of readily identifiable causes. Some philosophers will argue that things are not really like that - for instead of an immediate preceding causal factor there is a chain of earlier causes and effects leading up to it. A simple “cause” may make good headlines, but can be misleading. Applying solutions to address incorrectly-identified causes will potentially make matters worse.


In their 2003 book “Why CEOs Fail” authors David Dotlich and Peter Cairo follow Professor Hogan’s lead and identify eleven derailing behaviours which they have observed in leaders who fail. Some of those identified behaviours are Arrogance, Excessive Caution, Aloofness, Eccentricity and Eagerness to Please. It is difficult to disregard their findings, based as they are upon direct experience with thousands of leaders worldwide. Some of their examples are bizarre - for example, a well-known CEO with an 8-foot tall blow-up Fred Flintstone doll in his office to “consult” over difficult decisions. And a female former Fortune 500 CEO who would “sometimes start dancing during business presentations”. A little-known assessment tool is Critical Incident Technique, which was developed during WW2 by Colonel John C. Flanagan in aircrew training. One looks for behaviour which is outside the norm, and one makes a note of it.


“I Wouldn’t Normally Do This Kind Of Thing”

But whilst Dotlich and Cairo have put their finger on behaviours which are unlikely to achieve today’s Triple Bottom Line (Profit, People and Planet) are these behaviours the ultimate cause of failure, or are they the consequence of preceding problems? Or side-effects of them?


Maybe there is a clue in the 2017 book “Dear CEO”. It contains 50 personal letters to CEOs from leading business thinkers, complied by the THINKERS50 founders Stuart Crainer and Des Dearlove. The compilers say “job descriptions come to an end [at CEO level]. You are left to make it up as you go along” and “CEOs find that uncertainty rules. It can bewilder even the best prepared. Little coherent research has been done as to how CEOs do and should manage their daily working lives”. If this is the situation at many companies - and their perception is that this is so - it may be the case that there isn’t too much structure at the top.

The CEO is the top of the executive function, its “chief”, hence the title. But the executive function is only part of an organisation. Governments determine policies and priorities though the people’s elected representatives. The task of implementing that agreed policy becomes the responsibility of the executive Civil Service. The demarcation is clear, as are job descriptions. In business the CEO shouldn’t be some sort of one-man-band, a corporate version of the “Lone Cat” bluesman Jesse Fuller (1896-1976) whose team consisted of himself and his armoury of musical instruments. The CEO might more closely resemble the conductor of an orchestra or prominent member of a rock band. Yet many commentators clearly think that the CEO somehow “decides it all”. Strategy, policy, values, you name it. The lot. All decided by just one person.


Does the UK Corporate Governance Code, by the Financial Reporting Council, have anything useful to say about these matters? Let’s look at the overarching comments about the role of the board:


“The board’s role is to provide entrepreneurial leadership of the company within a framework of prudent and effective controls which enables risk to be assessed and managed. The board should set the company’s strategic aims, ensure that the necessary financial and human resources are in place for the company to meet its objectives and review management performance. The board should set the company’s values and standards and ensure that its obligations to its shareholders and others are understood and met”. (Section A1). In the following section (B1) we read “The board and its committees should have the appropriate balance of skills, experience, independence and knowledge of the company to enable them to discharge their respective duties and responsibilities effectively”.


Is this Corporate Governance view of responsibilities consistent with an absence of job descriptions, making things up as one goes along, Fred Flintstone, go-go dancing and one-man-bands? Surely not. Ginni Garner, the MD of the executive search firm The Garner Group says “developing a solid CEO job description requires you to identify key goals, challenges, outline tasks and activities and describe your definition of results/success”.


Why do derailing behaviours manifest themselves in failing CEOs? How can so many highly-experienced senior managers with good track records - for that is why people are selected for CEO positions - be harbouring ticking time bombs which may blow their investors’ piggy banks to Kingdom Come as these negative traits take hold? It is rightly said that Nature abhors a vacuum. Maybe in the case of CEOs without job descriptions, who are not supported by an effective and active team of Chairman, Executive Directors, Non-Executive Directors, Specialists and Advisors, the vacuum fills with derailing behaviour which was previously kept in check? Looked at another way, most if not all of us may share those, or similar, negative traits. Some describe these traits as the “dark side”. But perhaps these traits don’t normally surface because we are usually constrained by our environment. How might we behave if we are freed of constraints?


History shows that people can go off the rails when constraints are absent. Elvis Presley triumphed in his 1968 Comeback Special, but subsequently lost his way. And in another context it has been claimed that “all political lives, unless they are cut off in midstream at a happy juncture, end in failure, because that is the nature of politics and of human affairs” (Enoch Powell).


So maybe we need to look rather differently at the issue. CEOs are surely but one category of persons in positions of authority, power and privilege.


If we all have these weaknesses within us, this so-called “dark side”, we surely cannot deal with them by rejecting any CEO candidate whom we think might potentially manifest those weaknesses at some point in the future. For in doing so we would exclude everyone. My money is on the UK Corporate Governance Code approach being correct. The Code emphasises the need for boards to identify and manage risk. What could carry greater risk than allowing a CEO to have too much freedom, power and authority and to operate without a job description?


In any case, things are changing faster than ever. How could a CEO, from the pre-Internet generation, realistically be expected to personally assess the ever-accelerating impact of new technology and huge changes in world trade, as well as deal with everything else? Fifteen years have passed since David Dotlich and Peter Cairo expressed their concerns about CEO performance. Fifteen years during which revolutions have been taking place - retail and finance are merely two obvious examples. Even Father Christmas has probably brought his elves online and replaced Rudolph with an electric, rechargeable, self-driving drone.


How much stronger is the need today for sound management structures which professionally identify and manage opportunities as well as risks, in order to support CEOs rather than exposing their latent weaknesses!


Robert Waterhouse is an Advisor to the international Executive Search and Coaching firm Oxana Bristowe.

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