Leadership Mistakes

The Two Main Reasons Why CEOs Fail

Steven Sonsino asked:

So you’re going to be chief executive one day. But once you’ve got there, how are you going to hang on to your job? Well, there have been many high-profile failures in recent months and it’s possible to learn from those mistakes.

There are several reasons why leaders fail and I want you to learn from these failings. I don’t want you to make the same mistakes. Some of the mistakes and failures may seem obvious – keeping an eye on the financial results, for instance, or watching for backstabbers in the boardroom. But they are still dangerous. So I urge you to prepare to meet them head on.

Interestingly, some dangers are more subtle – the changing fashions in leadership style, for example, may mean that one day your leadership style just doesn’t fit any more. (You are the weakest link. Goodbye.)

Here I’m going to concentrate on the two main reasons CEOs lose their jobs.

1. They don’t keep the bottom line up.

When it comes to the finances, the buck stops with the chief executive. You’ll get fired if the numbers don’t add up. Count on it.

The global credit crunch has claimed several high-profile victims. Among them is Martin Sullivan of American International Group (AIG), who resigned after $30bn in write-downs and losses at the insurance group.

Then there is Chuck Prince, former chairman and chief executive of Citigroup, who had boasted: “It’s all about: are you growing the bottom line? That is the proof of the pudding. And I’m perfectly prepared to be judged by that.” He was indeed judged by the bottom line, and lost his job.

What you can do:

So what can you do to keep financial performance up? Well, as CEO you must constantly strive to motivate the leadership team. But to do what? You must ensure that your top leaders spend most of their time and energy motivating the rest of the business to higher levels of performance. Only the front line is out there doing the business and closing the deals that generate the revenue.

This is a hard business case for teaching your top leadership team how to motivate others. This is your strongest lever as CEO, unless you’re out there closing all the big deals yourself. (And do you have that kind of time? Probably not.)

So make sure you get great leadership development programs in place that explicitly focus on how to motivate other people to higher levels of performance.

Looking at how you reward your top team can also help. At Citigroup, Vikram Pandit, Chuck Prince’s successor as chief executive, is overhauling the bonus system for top managers: he aims to increase co-operation and minimize infighting among the different divisions. As one Citigroup executive said: “We have to put a premium on partnership-like behavior.”

2. They don’t communicate in the bad times

Communication is essential. And especially in the bad times.

A dip in profits can often be weathered, but when a profits announcement is mishandled you will quickly lose the confidence of your investors, the board and the employees. The pressure to go is impossible to resist.

If you remember that communication is key, then you understand you can’t dodge the bad news. But you also have to make sure you give bad news in the right way. Because when you get it wrong, the impact is fatal.

The credit crunch is may be threatening the future of Jean-Paul Votron, chief executive of Fortis, the Belgo-Dutch financial services group. But it’s not just the finances that have made Votron vulnerable.

Shareholders are particularly angry because, earlier in the year, they were told their dividend was safe and the company had no reason to raise fresh capital. Only a couple of months later, the company said it would cancel the interim dividend and issue new stock.

The Dutch association of small shareholders was alarmed by the failure in communication. “Our most pressing concern,” it said, “is the information between April and the end of June – what exactly happened at Fortis to make them change their position so drastically?”

What you can do:

In contrast, let’s look at what Samsung, the South Korean technology giant, did when it suffered a 52 per cent first-quarter profits fall one year. It turned the fall into good news. “The comparable figures were so good last year and this year’s business environment is not favorable, especially because of high oil prices and the strong Won. Taking all these (factors) into account, we had good results,” the company said – and many stock analysts were convinced.

So work hard to explain what has happened, and help people see the strategy is coherent and credible. A good explanation is worth gold to you.

You can also make sure you have great media training. The media can be influential at times like this and you need to know their agenda. Find out before it’s too late.

Needless to say, there are many other reasons CEOs fail, but if you can be prepared for these two – the bottom line and how you talk about it – your future will be that much safer.


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