Why Smart Executives Fail and What You Can Learn from their Mistakes



Book Author: Sydney Finkelstein

Book Review by : Sanjib Dutta
Faculty Member, ICMR (IBS Center for Management Research)


smart executives, policies, CEO, Dennis Kozlowski, corporate failures, Dartmouth, General Motors, robotics strategy, RJ Reynolds' Project Spa, Webvan, Enron, WorldCom, Tyco, ImClone

Abstract: The recent fall of many 'smart' companies and 'smart' executives have benefited one section for sure. The authors and publishers have benefited from the resources at their disposal. One could see many books on a single topic: corporate failures or failure of the so called smart executives. Why Smart Executives Fail is one more addition to the already existing literature on corporate failures or executive failures.

A recently written book on a similar subject is Why CEOs fail which was covered in the September issue of Effective Executive. Why Smart Executives Fail examines some of the often quoted reasons for executive failures. In fact it examines some seven 'theories' of executive failure. The first explanation for failure of executives is that they were stupid and incompetent. But the question is can we really go by this assumption? From the track record of the executives who have recently failed one cannot conclude that they were incompetent.

They were highly intelligent with exceptionally good qualifications. Most of these executives reached the top because of their competence and intelligence. So this explanation doesn't seem valid. The second assumption is that these executives could not predict the changes that are going to happen in the future. However smart they were, they could not manage the sudden change in business environment. But the author feels that none of the executives covered in his research failed due to this reason. According to him, all the executives could foresee the changes that are going to take place in their respective industries.

Failure to execute policies is another possible explanation for the fall of smart executives. But very few would buy this theory because if execution guaranteed success then CEOs who were advised by top notch consultancy firms would not have failed. But even many such executives failed.

Thus failure to execute is not the reason for executive failures. Some would say that executives who failed did not give their best. But why would not an executive give his best. After all he too gains if the company performs well. If one examines the routine of failed CEOs, it would be clear that they put extraordinary long hours, and did everything possible to make their companies great. It would be nave to assume that they lacked motivation. Still they failed.

Lack of leadership qualities could have been another reason for their failure. But most of the failed CEOs were great personalities, mesmerized people with their charm and charisma and had great following. They were forceful, commanded the attention and respect of people and were visionaries. Would anyone say that Jeffrey Skilling, the former CEO of Enron and Dennis Kozlowski, the former CEO of Tyco did not have leadership qualities? But we all know what happened to them and the companies they led. Some also suggest that great executives failed because the companies which they led did not have technological resources, capabilities or assets. Let's examine this assumption. Many companies that failed were technology giants, then why did they fail?

When all assumptions fail, one can say that the executives who failed were driven by greed. But the vast majority of CEOs who led the companies which failed were scrupulous people. And if we still believe that greed led to their failure, we have to question why these CEOs became greedy? Some would say that greed and dishonesty were characteristic of all the failed CEOs, but that would bring us to the question why were they not exposed and thrown out when their behavior threatened the survival of companies?

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