Sydney Finkelstein, the Steven Roth professor of management at the Tuck School of Business at Dartmouth College in Hanover, N.H., published Why Smart Executives Fail eight years ago.
In it, he shared some of his research on what more than 50 former high-flying companies – including Enron, Tyco, WorldCom, Rubbermaid and Schwinn – did to become complete failures. It turns out that the senior executives at the companies all had seven habits in common. Mr. Finkelstein calls them the seven habits of spectacularly unsuccessful executives.
These traits can be found among the leaders of current failures like Research In Motion RIM-T, but they should be early-warning signs (cautionary tales) to currently unbeatable firms like Apple AAPL-Q, Google GOOG-Q, and Amazon.com AMZN-Q. Here are the habits, as Mr. Finkelstein described them in a 2004 article:
Habit #1: They see themselves and their companies as dominating their environment
This first habit may be the most insidious, since it appears to be highly desirable. Shouldn’t a company try to dominate its business environment, shape the future of its markets and set the pace within them? Yes, but there’s a catch. Unlike successful leaders, failed leaders who never question their dominance fail to realize they are at the mercy of changing circumstances. They vastly overestimate the extent to which they actually control events and vastly underestimate the role of chance and circumstance in their success.
CEOs who fall prey to this belief suffer from the illusion of personal pre-eminence: Like certain film directors, they see themselves as the auteurs of their companies. As far as they’re concerned, everyone else in the company is there to execute their personal vision for the company. Samsung’s CEO Kun-Hee Lee was so successful with electronics that he thought he could repeat this success with automobiles. He invested $5-billion (U.S.) in an already oversaturated auto market. Why? There was no business case. Mr. Lee simply loved cars and had dreamed of being in the auto business.
Warning sign for #1: A lack of respect
Habit #2: They identify so completely with the company that there is no clear boundary between their personal interests and their corporation’s interests
Like the first habit, this one seems innocuous, perhaps even beneficial. We want business leaders to be completely committed to their companies, with their interests tightly aligned with those of the company. But digging deeper, you find that failed executives weren’t identifying too little with the company, but rather too much. Instead of treating companies as enterprises that they needed to nurture, failed leaders treated them as extensions of themselves. And with that, a “private empire” mentality took hold.
CEOs who possess this outlook often use their companies to carry out personal ambitions. The most slippery slope of all for these executives is their tendency to use corporate funds for personal reasons. CEOs who have a long or impressive track record may come to feel that they’ve made so much money for the company that the expenditures they make on themselves, even if extravagant, are trivial by comparison. This twisted logic seems to have been one of the factors that shaped the behaviour of Dennis Kozlowski of Tyco. His pride in his company and his pride in his own extravagance seem to have reinforced each other. This is why he could sound so sincere making speeches about ethics while using corporate funds for personal purposes. Being the CEO of a sizable corporation today is probably the closest thing to being king of your own country, and that’s a dangerous title to assume.
Warning sign for #2: A question of character
Habit #3: They think they have all the answers
Here’s the image of executive competence that we’ve been taught to admire for decades: a dynamic leader making a dozen decisions a minute, dealing with many crises simultaneously, and taking only seconds to size up situations that have stumped everyone else for days. The problem with this picture is that it’s a fraud. Leaders who are invariably crisp and decisive tend to settle issues so quickly they have no opportunity to grasp the ramifications. Worse, because these leaders need to feel they have all the answers, they aren’t open to learning new ones.
