Why ceos fail fortune

What were the causes of these failures and derailments? This article will examine that question and propose some solutions. I use the term failure or derailment in a leadership or executive role is defined as being involuntarily plateaued, demoted or fired below the level of expected achievement or reaching that level but unexpectedly failing.

This article will use the terms leader, executive and CEO interchangeably. Chief executives now are lasting 7. It appears that the major reason for the failure has nothing to do with competence, or knowledge, or experience, but rather with hubris and ego and a leadership style out of touch with modern times.

Most such leaders tend to fail or get pushed out of the job long before the likes of the global top even start to wobble. Long-lasting iconic leaders are the exception rather than the rule. It reported for example, from to Leadership has been a heavily researched topic for over 50 years. As a result, over 15, articles and books have been published on this topic.

We know a lot about the characteristics of successful leaders. In spite of this knowledge and investment, most organizations feel they have a shortage of effective leaders. It has been estimated that between 50 and 75 percent of leaders are not performing well Hogan and Hogan, The number of leaders that get fired for failing to perform has increased over the past decade and the tenure of organizational leaders has steadily dropped Hogan, Mintzberg has long been a critic of the degree that most people in business consider an important prerequisite for success.

He has refused to teach MBA students, arguing teaching MBAs involves teaching the wrong people the wrong things at the wrong time, and has written a book critical of such programs. Looking at how they fared in ensuing years, he found that a majority, 10, seemed to have clearly failed — their company went bankrupt, they were forced out of the CEO chair, a major merger backfired, or some similar significant setback occurred.

Four others had questionable performance, meaning that 14 out of 19 stars had failed to shine. Of course, that was just one sample and one study. Both sets of companies declined in performance after hitting the cover. Miller has noted. But the ones headed by MBAs declined more quickly and the performance gap remained significant even seven years after the cover story. The research suggests an association between the MBA degree and a desire to achieve growth via acquisitions, leading to reduced cash flows and inferior return on assets.

The second study was broader and more recent, looking at 5, CEOs of major United States public corporations from to The results were much the same. Still, with so many of their graduates getting to the top — if not necessarily staying there — the incentive to change is small.

The failures are believed to be due to simple incompetence, rigidity, hubris or narcissism, traits that made the CEOs deaf to the changing world around them. According to Sydney Finkelstein, author of Why Smart Executives Fail , researched several spectacular failures during a six year period.

He concluded that these CEOs had similar deadly habits:. The costs associated with such misdirected learning are significant, and often tally in the hundreds of millions to billions in losses.

These mistakes are seldom due to managerial incompetence or random events, but rather are driven by common patterns of managerial behavior.

David Dotlich and Peter C. These are:. Dotlitch and Cairo show that even great leaders can derail their careers by exhibiting flawed behaviors which are often closely related to the factors that made them successful so far. They say leadership failure is primarily a behavioral issue. Leaders fail because of who they are and how they act, particularly when they are under stress. All leaders are vulnerable to the eleven derailment factors; these are deeply ingrained personality traits that affect their leadership style and behaviors.

But identifying and managing these derailers is possible and failure can be prevented Dotlitch and Cairo argue. Barbara Kellerman , in Bad leadership: what it is, how it happens, why it matters focused on two basic categories of bad leadership, ineffective and unethical, identifying seven types of bad leaders that are most common:. Kellerman says the first three types of bad leaders are incompetent; the last four types are unethical.

Incompetent leaders are the least problematic damaging while unethical or amoral leaders are the most problematic damaging. Ineffective leaders fail to achieve the desired results or to bring about positive changes due to the means falling short. Unethical leaders fail to distinguish between right and wrong.

Ethical leaders put followers needs before their own, exhibit private virtues courage, temperance and serve the interests of the common good. Kellerman argues that the unethical leaders have caused the most damage to organizations.

Joyce Hogan and Robert Hogan have written extensively on leadership failure. They lack socio-political intelligence. This produces an insensitivity to others which limits their abilities to get work done through others.

Work colleagues do not like or do not trust or both the leader. Researchers Cynthia McCally and Michael Lombardo identified the ten most common causes of leadership derailment:. Najjar et al. The sample included high potential senior executives from a Fortune company. Criteria included four leadership factors business results, people, self and eleven interpersonal factors e.

Four broad hypotheses were considered:. Their results showed that dysfunctional behaviors associated with arrogance, cautiousness, volatility, and skepticism negatively affected performance ratings the most. Thomas Chidester and colleagues examined the personality characteristics of more and less effective commercial airline flight crew.

Effectiveness was defined by the number and severity of errors made by the crew. Captains of crews with the fewest errors were described as warm, friendly, self confident and coped well with pressure. Captains of crews with the most errors were described as arrogant, hostile, boastful, egotistical, dictatorial and passive aggressive. The psychological literature on leadership derailment and failing leadership borrows many ideas from psychiatry and psychoanalysis.

Seventy-five years ago the German born Freudian Karen Horney argued that children develop three normal and spontaneous patterns of relating to others. The three trends have been labelled moving away from others, moving against others, and moving toward others. The moving away trend consists of coping mechanisms characterized by isolation and pulling away from others to avoid situations that provoke basic anxiety. The moving against trend has a basic hostility and mistrustfulness at its center.

People, she argued, characterized by this trend cope with their basic anxiety by seeking power and control over others. The third trend of moving toward others is characterized by inhibition of own needs to appease others at almost any cost.

The second pattern that Horney identified is arrogance: hubristic, self-centered, pompous. We admire people with self-belief who is is not held back by self-doubt and dithering. The third pattern is theatricality: varying expressions of emotionality, dramatic, show offs. The media likes the expression of passion; the boss who can appear totally committed to their business. They also like quirky expressions of special clothes and personal styles.

The data suggest that these three characteristics, in moderation, are extremely helpful in a business career. Of course, one needs to be bright, hard-working, ambitious etc, but these three characteristics give one a boost. Indeed, there are studies from Britain, Denmark and New Zealand, all of which correlate with these ideas. The worldwiderevolution of free markets, open economies, and lowered trade barriers and the advent ofe-commerce has made virtually every business far more brutally competitive.

The frantic spreadof information through technology is making customers everywhere more powerful and pushingtoward the commoditization of everything. Institutional investors now own more than half theequities in U. Indeed two of the nation'spreeminent headhunters, Tom Neff and Dayton Ogden of Spencer Stuart, calculated recently thatwhile average CEO tenure in the biggest companies has remained fairly steady at seven to eightyears, those who don't deliver are getting pushed out quicker.

See the graph later in the article. A new academic study reaches the same conclusion - poorly performing CEOs are three timesmore likely to get booted than they were a generation ago. Even if their boards spare them, theircompanies often get taken over, like Digital Equipment under Robert Palmer and Rubbermaidunder Wolfgang Schmitt.

Bottom line: Whatever cover CEOs used to hide behind has beenblasted away. Either they deliver, soon, or they're gone So how do CEOs blow it? More than any other way, by failure to put the right people in the rightjobs - and the related failure to fix people problems in time. Specifically, failed CEOs are oftenunable to deal with a few key subordinates whose sustained poor performance deeply harms thecompany. What is striking, as many CEOs told us, is that they usually know there's a problem;their inner voice is telling them, but they suppress it.

Those around the CEO often recognize theproblem first, but he isn't seeking information from multiple sources. How's your performance--and your performance credibility?.. Of course you have to deliver results, but you're unlikely to do so if you haven't developedperformance forecasts for the next eight quarters, not just the usual four. You should haveideas now for changes you may have to make six to eight quarters out. You should feel connected to the flow of information about your company and its markets;that includes regular, direct interaction with customers and front-line employees.

Are youfollowing through on all major commitments from your direct reports? Are you listening tothe inner voice telling you whether these things are going well or badly?.. Every company, even the most successful, has bad news, usually lots of it.

If you're nothearing it, are you letting the trouble build? The information you get should force you totake competitors seriously That means evaluating you and your direct reports, asking for information about yourmarkets, and demanding a succession plan - but not formulating strategy your job ortrying to manage operations The excuses and rationalizations that CEOs concoct are largely unconscious, a mechanism foravoidance.

They make an impressive list; six cover most cases The CEO may become a victim of "intellectual seduction," installing a subordinate sotalented that the CEO persuades himself failure is impossible. If the protege then fails todeliver, the CEO can't come to terms with it, especially if the protege is a successioncandidate.

Often these subordinates have been promoted into line jobs from staff positionsor consulting firms, with their high-level executional abilities untested The problem of blind loyalty shows up more often than you may suspect. The boss and thesubordinate may have worked together a long time; in some cases their families vacationedtogether. Judgment becomes blurred. Mention this to people who were around General Motors in the early '90s and they tend to nod vigorously and say, "Lloyd Reuss!

Stempel emphatically disagreed, often putting his arm around Reuss' shoulders and exclaiming, "Lloyd's my guy! When the directors took the chairman's title away from Stempel, they also demoted Reuss, and when they fired Stempel six months later, they booted Reuss too. The executive missed his commitment the first year, then missed it again the second, causing the whole company to fall short of its publicly stated promises to Wall Street.

The CEO decided he wasn't giving the subordinate enough coaching and resolved to help more. He was human. But was this response humane? It wasn't. Results continued to decline, the stock collapsed, and the company was taken over.

Both executives are gone, later joined by several thousand employees deemed unneeded by the new owner. It isn't uncommon for a strong CEO, otherwise decisive, to be blind to this fatal flaw.

Poor performance hurts the company's results, but taking out the subordinate may hurt its image. Typically the CEO doesn't act until the problem is acute, and by then it's sometimes too late.

The board won't like it if I sack another. But if the subordinate is failing, delaying action just makes the problem worse. If the company has a strong, insular culture, he may rationalize that the culture wouldn't accept an outsider. We've heard all these statements, and they're virtually always a sign of trouble ahead. Quick action on problems in the top team is simply imperative.

He recruited four candidates--most notably President John Walter--but none worked out. When Walter got fired, the board seized control of the process, and the company took considerable heat from Wall Street and the press. Yet you needn't be ruthless to get things done. Ron Allen's willingness to swing the ax so antagonized Delta's work force that the board asked him to leave. When Lou Gerstner parachuted in to fix the shambles John Akers had left of IBM, famously declaring that "the last thing IBM needs right now is a vision," he focused on execution, decisiveness, simplifying the organization for speed, and breaking the gridlock.

Many expected heads to roll, yet initially Gerstner changed only the CFO, the HR chief, and three key line executives--and he has multiplied the stock's value tenfold. The best CEOs never hesitate to fire when they must, but the larger point is that they're deeply interested in people--far more so than failed CEOs are. GE's Jack Welch loves to spot people early, follow them, grow them, and stretch them in jobs of increasing complexity.

His written feedback to subordinates is legendary: specific, constructive, to the point. Of course some come up short. When Welch committed the company to achieving six-sigma quality a few years ago, he evaluated how the beliefs of high-level executives aligned with six-sigma values. He confronted those who weren't on board and told them GE was not the place for them. This continual pruning and nurturing gives GE a powerful competitive advantage few companies understand and even fewer achieve--extraordinary longevity in top executives.

Because Welch has the right people in the right jobs, he can leave them there and things tend to get better, not worse. The motto of the successful CEO, worthy of inscription on his or her office wall, is "People first, strategy second. Regular review of subordinates is a vital process, but every process carries a mortal danger--that the CEO will forget its purpose and begin to think that the process itself is what matters.

It happens all the time. A CEO becomes committed to an organizational model. Middle managers resort to informal networks to get things done. Cliques form. Indecisiveness takes over, and a fast-moving competitor grabs the advantage. Decision gridlock can happen to anyone, but it happens most often to CEOs who've spent a career with one company, especially a successful one. The processes have worked, they're part of the company's day-to-day life--so it takes real courage to blow them up.

Listen to Elmer Johnson, a top GM executive, describe this problem to the executive committee: "The meetings of our many committees and policy groups have become little more than time-consuming formalities.

The outcomes are almost never in doubt There is a dearth of discussion, and almost never anything amounting to lively consideration It is a system that results in lengthy delays and faulty decisions by paralyzing the operating people Neither man could break the process machine, and both must be considered failed CEOs.

Process gridlock is never good, but in the unforgivingly fast Internet age it's the way to catastrophe. It was a major problem during Gil Amelio's short time atop Apple Computer. Roger Siboni, who spent 20 years as a KPMG consultant, now runs a Silicon Valley startup called Epiphany and says the differences in process are stark: "You can't imagine the contrast here with the cordialness of corporate America.

That whole world--meetings, facilitators Out here that would be ludicrous. Effective CEOs use processes to drive decisions, not delay them. They start by focusing on initiatives that are clear, specific, and few, and they don't launch a new one until those in progress are embedded in the company's DNA. We've heard many employees, and so have you, speak witheringly about their CEO's flavor of the month--vision statements, quality, empowerment, leadership, all of which beget process and apparatus.

By contrast, Welch has introduced just five major initiatives in 18 years as CEO the most recent is e-commerce. With their initiatives firm, effective CEOs implement them through a process that seems simple, even obvious, but has profound effects.