Why Smart Executives Fail: A book review by Bob Morris

Why Smart ExecutivesWhy Smart Executives Fail: And What You Can Learn from Their Mistakes
Sydney Finkelstein
Portfolio/Penguin (2003)

First Time, Shame on Them….After That, Shame on You

Initially, Finkelstein really didn’t understand, nor did I before reading his book, how and why can so many business leaders fall so far so fast. “How can so many people be do disastrously wrong? What can possibly account for the scores of business failures we see each year, in different industries, and even in different countries? And how can we prevent this sort of thing from happening again?”

Finkelstein devoted more than six years of research to answering questions such as these. “My goal was not only to understand why businesses break down and fail, but to focus on the people behind these failures; not only to understand how to avoid these disasters, but to anticipate the early warning signs of failure. Ultimately, I wanted to move beyond ad hoc explanations of failure on a case-by-case basis and expose the roots of these breakdowns in a definitive way.” Whereas Peters and Waterman set out in search of excellence, Finkelstein and his research associates set out in search of failure…and achieved that objective. What they found and what they learned are now offered in this brilliant book.

He organizes his material within three Parts: Great Corporate Mistakes, focusing on four different business challenges: creating successful new ventures, managing mergers and acquisitions, coping with innovation and change, and developing winning strategies in the face of new competitive pressures. In Part II, he identifies the underlying causes of failure evident even across different types of corporate mistakes. In this Part, Finkelstein offers a deeper analysis of the common patterns of behavior that executives in failing companies exhibited. In Part III, Finkelstein shifts his (and his reader’s) attention to explicitly developing two critical ideas that have stayed in the background to this point. “First, can we use the findings of our study as an early warning system? Can our results tell us how to predict when trouble is coming? And second, how do successful executives create organizations that can learn from, and better yet avoid disaster? What can we learn fro them?”

Almost everything of any significant value I have learned in my life thus far has been the result of personal experience. And almost everything of value I have learned from that experience involved a failure of some kind. Hence the great importance of this book which examines dozens of “smart executives” who failed. They include Jill Barred at Mattel, Dennis Kozlowski at Tyco, Jean Marie Messier at Vivendi, Robert Pitman at AOL Time Warner, and Wolfgang Schmitt at Rubbermaid. Indeed, the research for this book devoted rigorous attention to senior level executives in 51 different companies of various sizes and nature. Where did even the brightest executives go wrong? What can we learn from their mistakes? How can we avoid repeating those mistakes in the future? In essence, that is what this book is really all about.

Long ago, someone made a clever observation that Russian historians always predict the past with absolute accuracy. I recall that comment by way of suggesting that Finkelstein indulges in no gloating whatsoever. There is no indication of any hubris in him even as he examines several victims of that classical affliction. He well realizes — and with evident dismay — that the mistakes of any presumably capable executive can sometimes have serious, if not catastrophic implications for hundreds and even thousands of others. He lists and then evaluates seven theories that are frequently offered to explain executive failure. (For example, “The Executives were stupid.”) Next, he explains that before the research began, there were no “crystal-clear hypotheses” with regard to patterns of failure. Then on to a series of mini case studies which reveal both the executive mistakes and what lessons could be learned from them. Of special interest to me is the set of early warning signs that the research uncovered. They may not prevent others from making mistakes but recognition of them in a timely manner can indeed reduce the potential damage. Also of special interest are the ways Finkelstein formulated by which to diagnose business mistakes as they are happening.

It may not have been Finkelstein’s initial purpose but in fact what he found during his search for an explanation of executive failure is a wealth of information that can help smart executives to succeed. Obviously, there is so much more involved than merely inverting a serious of mistakes (e.g. cooking the books) and then assuming that (Eureka!) a recipe for certain success has emerged. This is a remarkably thoughtful and sensitive book about human failure. How valuable it proves to be is for each reader to determine. If appropriate, when reviewing other business books, I intend to include this book among those recommended for further reading.

I presume to suggest that this book would be an excellent choice to serve as the basis of an off-site meeting of senior level executives. Reading of it in advance would of course be required. I further suggest that the agenda follow the book’s structure: Rigorously examine areas in which, over the previous 12-18 months, the organization has either failed or encountered less than the success it desired; next, with equal rigor and (yes) candor, determine the reasons for unsatisfactory performance; finally, determine with meticulous precision the lessons learned and then formulate a game plan to make whatever changes are necessary throughout the organization’s operations, with special focus on leadership and management.

Of course, I hope this book helps many smart executives to avoid making the mistakes Finkelstein examines. My greater hope (and presumably his is as well) is that countless others who are not directly involved in the decision-making process will be spared the financial and emotional damage that has been inflicted upon their counterparts at companies such as Enron, Tyco, and WorldCom.

John Donne was right. “No man is an island.” That is especially true of senior-level executives.

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