Dr Sydney Finkelstein
The failure of something is not the coolest subject to base research on but Sydney Finkelstein, who teaches leadership and strategy at Dartmouth’s Tuck School of Business has done just that. The faculty director of the Tuck Executive Education programme has been for years, delving into “why some CEOs and companies fail”. The years of study has resulted in many books, including Why Smart Executives Fail and Think Again Why Good Leaders Make Bad Decisions. In this interview, Dr Finkelstein shares some thoughts on his pet avocation with PaGaLGuY.
What made you chose this subject for research and how did you go about it?

I have been studying failure in business and government for over 15 years. Many of the underlying explanations for failure and what could be done to reduce the odds of falling into those traps were discussed in my book, Why Smart Executives Fail. For the annual list of worst CEOs, I work with my research team to track major decisions and events throughout the year, to settle on the most egregious mistakes for the year-end ranking. Why? Because with so much at stake (from shareholders, customers, employees, government) we all want to see businesses succeed, and we want failing business to change. My list, based on my research on this subject, is the primary academically-driven analysis of failing companies and as such, has become very influential. As just one example, two of the CEOs on my list published end-December 2011 are no longer going to be CEOs of their companies.

Can you please list some CEOs who made mistakes in the last two years and list their mistakes?
Rupert Murdoch, CEO, NewsCorp: Supports and celebrates employees who push the limits and even break the law. Believes that hes above the law, and so are his top employees. 2011 was the year when scandals finally spilled into public conscience.

Graham Spanier, President, Penn State University: Was told about potential sexual abuse and didnt do anything about it. Spanier testified that administrators had informed him about an incident when a football coach Jerry Sandusky was seen in a shower with a child, yet Spanier denied that the incident was reported to him as sexual. On November 5, when Gary Schultz, a senior vice president, and Tim Curley, the athletic director, were charged with perjury, Spanier released a statement saying he had complete confidence in their handling of the accusations against Sandusky a statement that incensed university trustees.

William Weldon, CEO Johnson & Johnson: Presided over an incredible string of product recalls, a direct result of Weldons emphasis on cost-cutting. In some ways, hes the Tony Hayward of 2011. It appears the company is saying that certain traces of chemicals (like in J&J; baby shampoo) are not harmful, but nonetheless they are removing the chemicals from products outside of the US. Seems to talk the talk, but what can he make actionable? With the controversy surrounding potential cancer-causing chemicals in J&J; Baby Shampoo, Weldon has said J&J; plans to eliminate the formaldehyde-releasing preservatives from its baby products. The test will be if he can meet this timeline, without encountering any more recalls.

Reed Hastings, CEO Netflix: Split business into two (traditional mail order versus streaming) and raised price at same time. Result? The company image shifted from the beloved small rebel to one that was ripping off customers. Willingness to incur high product acquisition costs, knowing very well the company will not easily make that money back. There is some debate now about whether Netflix’s best days are behind it.

Leo Apothekar, former CEO HP: Missed financial targets, didnt know whether he was selling or keeping consumer PC business; poor execution of strategy; unclear strategy. Basically a laundry list of mistakes and incompetence. Really raises the question of why he was hired in the first place to replace Mark Hurd. And of course the boards handling of the Hurd dismissal was far from stellar. Finally, hiring of Meg Whitman may or may not turn out to be a wise move, but the board comes off as falling into the lets hire a celebrity CEO so we cant be blamed anymore trap.

Mike Lazaridis and Jim Balsillie, co-CEOs Research in Motion (RIM): Unable to do anything right in 2011, from Blackberry outages to watching Apples iPhone dominate, to spending more time trying to get an NHL franchise than anything else, Balsillie and Lazaridis seemed paralyzed. Famously and continually, regarding the iPhone as little more than a toy, and not worthy of attention as a legitimate competitor. Retaining co-CEO structure, a system that creates confusion at the top and hardly ever works.

In such type of work, do you not expect legal repercussions from the people discussed in the studies?

No. If academics cannot speak out on what they are learning, then we have an even bigger problem.

Is it right to blame the CEO entirely, when he is advised by a team?

Of course CEOs rely on many others on their team, and sometimes the board of directors for advice. But there is only one person at the top of an organisation, and that person has ultimate responsibility. That’s why they get paid so much. The expectations for performance and growth are very high, as they should be. And yes, mistakes will happen, but the hallmark of the best CEOs is not whether they never make a mistake (not possible), but how they react to it. Do they acknowledge the problem in strategy, or product, or technology, and act aggressively to fix that problem, or do they ignore it? The best CEOs are adaptable and flexible, always focused on getting things as right as they can. They are not focused on the past, and they actively learn from their mistakes.

Who are some of the good CEOs and their ‘good decisions’ taken in the recent past?

Jeff Bezos of Amazon is a terrific example of a great CEO. He not only created the company as an entrepreneur, but he has grown and transformed the business from an online seller of books to a major force in retail and in technology. There are very few people who have managed this transition from start up to establish business as well as Bezos has. His recent decision to buy a robotics company is yet another example of his forward thinking.

Larry Ellison, the CEO of Oracle, is another great example of a world-class CEO. Ellison is tough, demanding, and brilliant, and has staffed his company with tremendous talent. He has consistently built one of the strongest teams of top managers in the industry, many in any industry, and understands the key to success is having the best people unleashed to do their best.

But dont CEOs get feedback on a regular basis on their performance?

Leaders are people. And people sometimes do things they should not do. Sometimes, we hide our heads in the sand so as not to hear. Sometimes we allow our personal biases to influence the decisions we make. Sometimes we ignore the feedback, we do not want to change, underestimate the real difficulties, and we create a reality on our own actions, without listening to the customers. And all these very personal weaknesses, projected on top of organisations lead to failure. The margin of error in the upper echelons of a business management complex is very small, and the level of competition is very high. And that is why even the most apparently bright and intelligent executives, who are not able to manage and control the human frailties that can afflict us all, fail.

Are there any reasons for the mistakes?

Yes. These include the mindset, the mechanisms of protection and delusional attitudes, breakdowns in communication processes and can be summarised as seven habits that lead to failure. The CEO’s mentality is an important factor — because of their mind-set, managers often push their company in a completely wrong direction or are unable to renovate as you should, because they are committing a fundamental error in how they are evaluating the opportunities and problems of their business. Moreover, we perceive that CEOs are on track for the failure when they begin to ignore the problems, and not dare to ask the tough questions.

In most cases, the CEO allows the arrogance and complacency to take over and hurt the company. For example, what to do when the target product of a company is threatened by new innovations and more attractive products? Balsillie and Lazaridis, former co-CEOs of Research in Motion, have invested everything and insisted on a product, the Blackberry, even when the hordes of iPhone and Android were taking away market share. They would not throw anything on the Blackberry. This is arrogance.

Mike Lazaridis and Jim Balsillie, former co-CEOs of Blackberry-maker RIM
How has the Internet and increased connectedness affected the role of the CEOs?

Many of the big CEOs of today have not grown up in the era of Facebook and other social media and this represents a great challenge. I know that many of them are seriously concerned about the management of this challenge effectively. Social media has a strong value in this age and generation but also represents a risk if the information provided by the company or its representative is not accurate or does not reflect the vocation and mission of a company. This is especially true when it comes to customers, who have more ways to express their views on such platforms. CEOs who did not have social media tool as students and in the formative years as leaders may lose out on a competitive platform if set against those who are more familiar with its usage.

Can mistakes be avoided?

There are five warning signs. First, companies with a uniform and constant success that suddenly show a series of delusional attitudes, should be ready for possible failure. Secondly, if there are companies those are successful in their market and serve as advertising for those who want to join the same sector of activity, then in the absence of strong barriers to entry, new firms will go a little further than the incumbents. Third, success breeds arrogance, and companies must strive to be critical thinkers and continue to ask the tough questions. Fourth, it is easy to let our guard down when all goes well and business is at its maximum, but profits do not prevent a company from sailing directly into the eye of the storm. Finally, success has its apex, which is very difficult to maintain. The CEO cannot rest on the moment of glory, and must constantly reevaluate and rethink their business plan.

What qualities in a good CEO or manager have you noticed?

Top executives today are often, though not always, better qualified than ever before. The main reason is the globalisation of the market for professional talent. We’ve seen CEOs who are English and American in Japanese companies, Indian CEOs of American companies, etc. With a wider talent pool, which will continue to expand by opening up more and more, expecially in China, it is logical that the quality of managers at the top will always be better.

The single most important characteristic of great managers is the ability to adapt in real time to change. There are many reasons why managers and the companies they consider it important to conduct the status quo, but the best a leader can do is understand that change is not only part of reality, but it is a necessity. Adaptability in the face of unforeseen events, this is the hallmark of the greatest managers.

Dr Finkelstein has globally been regarded as an authority on leadership and strategy. He conducts advanced leadership programmes across the world, including Mexico, Finland, England, France, Italy, Poland, China, Vietnam, and of course the United States.