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Why Smart Executives Fail

And what you can learn from their mistakes

By Sydney Finkelstein

 
 

Business failure isn’t simply a matter of incompetent leadership or out-of-step executives. Sometimes the most talented individuals can pursue the wrong path.

How do smart people who have been successful for years suddenly begin to make catastrophic – and catastrophically bad – decisions? Why do they ignore evidence that is directly in front of them and proceed on a destructive path? Why Smart Executives Fail is a book by Sydney Finkelstein that explores corporate mistakes – what they are, why they occur and what managers, leaders, and investors can do about them.

When a business venture fails, most investors and financial journalists reach for reasons such as demotivated or out-of-step executives or insufficient resources to execute plans. The author debunks such myths by showing a number of obviously smart and inspired executives who had all the means and board-level support at their disposal but still made disastrous mistakes. Finkelstein presents his thesis in three sections: The mistakes that were committed, the causes of failure and the lessons that can be learnt from those errors.

The main mistakes showcased include resistance to innovation, overreaching or misunderstanding mergers and acquisitions and pursuing a flawed strategy. Business failure, meanwhile, is attributed to factors such as misdirecting resources into one, narrow area, failing to correctly interpret available data and the age-old problem of executive infallibility – where they, and only they, have the answers.

The book consolidates the lessons learnt by emphasizing on a simple organizational structure with a leader who is both focused and open-minded. The leader must pay attention to warnings. Success of an organization is a warning sign: When an organization reaches the top, the only way is down and one can do that by inaction or wrong action.

The leader must establish a culture of openness where different ideas can be discussed without one being ridiculed, and where mistakes can be brought to the attention of the bosses without personal repercussions. The organization must have a formal or informal process for learning from mistakes. Feedback and the understanding that executive assumptions can be delusions are both crucial to avoiding steering the company down a wrong path for too long.

Ultimately, Finkelstein argues, a successful leader must understand that while mistakes are avoidable, they will still happen because risk is inherent in any activity. Finally, leaders must recognize qualities of unsuccessful executives and strive to remove them.