Sydney Finkelstein on why smart executives fail: An interview by Bob Morris

Finkelstein, SydSydney Finkelstein earned a Bcomm degree from Concordia University, an Msc. degree from the London School of Economics, and a PhD. from Columbia University. He is Steven Ross Professor of Management at Dartmouth’s Tuck School of Business. His published works include Dynamic Capabilities: Understanding Strategic Change in Organizations (with C. Helfat, W. Mitchell, M. Peteraf, H. Singh, D. Teece, and S. Winter), Breakout Strategy: Meeting the Challenge of Double-Digit Growth (with C. Harvey and T. Lawton), and Why Smart Executives Fail: What You Can Learn from Their Mistakes, published by Portfolio/Penguin Group (2003).

Note: I conducted this interview in 2003 for various media outlets. It appears at this website for the first time.

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Morris: Over the years, the average tenure of CEOs has been reduced significantly. In your opinion, why?

Finkelstein: Two reasons, both inter-connected. First, executive compensation has been elevated to such a high level that the expectations for performance are higher than ever before. When you’re making millions, you’ve got to deliver. Second, boards (the ones deciding on those CEO pay checks) have ratcheted up the pressure for performance. In the post-Enron period, boards are quicker than ever to pull the trigger and remove a CEO for under-performance.

Morris: Given your response to the previous question, to what extent has this phenomenon had an impact on MBA programs such as those offered at major business schools such as Tuck, Harvard, Kellogg, and Wharton?

Finkelstein: At Tuck, we’ve now integrated many of the ideas from Why Smart Executives Fail to the curriculum. We not only teach best practices, we also teach “worst practices,” and obviously how to avoid finding yourself in that situation. In addition, the Tuck program emphasizes a wide variety of leadership activities that we screen applicants for, and then offer students in an ongoing effort to elevate the quality of leadership our graduates when entering the work force.

Morris: Based on your research as well as your direct involvement with all manner of organizations, what challenges do senior-level executives face now that did not exist only a few years ago?

Finkelstein: One of the biggest stems from the earlier question on CEO tenure. With the clock ticking as never before, there is added pressure to begin initiatives and find solutions faster than ever. Business is also more global than ever before, and that trend is just accelerating with China and India, among others, becoming bigger players. The ability to build organizations that can succeed on a global scale, and are ready for global competitors, no matter the business, is a huge challenge.

Morris: What is the single most important business lesson you have learned from the difficulties which companies such as Adelphia, Enron, Tyco, and WorldCom have encountered?

Finkelstein: There is no replacement for ethical leadership in organizations. This begins at the top, but permeates throughout the organization, for better or worse.

Morris: What prompted you to write Why Smart Executives Fail?

Finkelstein: Like many people, I had seen the countless books on success, and began to wonder, with so many corporate breakdowns occurring, why isn’t anyone paying attention to what might go wrong in organizations? I also found the topic to be intuitively appealing, really intriguing, and that was very important to me.

Morris: During your research while preparing to write the book, were they any revelations which really surprised you?

Finkelstein: First, how smart and talented, with great track records, many of the failing leaders actually were. This was a big surprise. Also, how often it was the case that key pieces of information were known to key decision-makers, but they were unable to, or refused to, address the implications of that information. Failure can be predicted, but most of the leaders I studied turned the other way.

Morris: Obviously, many so-called “smart” executives make poor judgments, have serious character flaws, etc. Which CEOs do you admire most in terms of their performance both as leaders and as managers?

Finkelstein: A.G. Lafley at P&G has been a big success on multiple dimensions, including innovation and ethical leadership. Immelt is doing the impossible – building a stronger track record than his predecessor.

Morris: For those who have not as yet read Why Smart Executives Fail, in it you discuss a number of “traps” into which many executives fall. Why do they do so?

Finkelstein: Four reasons: making incorrect or inappropriate assumptions that then drives ineffective strategy; allowing their past success to drive future behavior to such an extent that they close themselves off from new ideas and people; breakdowns in communication and information management that makes it unlikely to see the key data they need to in a timely fashion; leaders themselves that adopt “spectacularly unsuccessful habits,” such as close-mindedness, inability to learn new things, belief in their dominance and rightness, among others.

Morris: How to avoid or escape from these “traps”?

Finkelstein: This is a tough question to answer – the entire book tries to answer this. But, in brief, knowing the most common places where strategic assumptions go wrong and having the integrity to do something about it; building an organization of people who constantly question the status quo and actively seek to learn what might go wrong; creating a leadership funnel of talent that does not suffer from the dangerous habits; and building an early warning system to identify the potential vulnerabilities of an organization in real time.

Morris: One final question. Of all the leadership challenges which senior-level executives will face in the next few years, which do you consider to be the most difficult? What advice do you offer to them so that they can respond effectively to that challenge?

Finkelstein: Business is getting more difficult, for reasons that are not difficult to understand – tougher boards with greater demands, global competition; shifting technology; complexity; and the need for talent that is not always there. While all are important, no organization can succeed without the right people in the right places, making a difference. Leaders must make talent acquisition, development, and learning the highest priority. No one has all the answers, obviously, so the best organizations realize that the difference-makers are those key people who are best placed – and have the motivation – to seek innovative solutions to difficult problems. Spend the money on people, and the payoff will be much bigger than any other investment.

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To learn more about Syd and his work, please click here.

Please click here to examine my review of Finkelstein’s Why Smart Executives Fail.

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