Why Smart Executives Fail: And What You Can Learn from Their Mistakes

Professor Sydney Finkelstein

Steven Roth Professor of ManagementTuck School of Business at Dartmouth

www.whysmartexecutivesfail.com

The Turnaround Finance Group Spring Event at Kasteel Nyenrode

April 16, 2005

Why Smart Executives FailWhy Smart Executives Fail

Executive Executive Mindset Mindset FailuresFailures

Delusions of a Delusions of a Dream CompanyDream Company

Confidential. Do not quote or copy without written permission. © Sydney Finkelstein, 2003.

OrganizationalBreakdowns

Leadership Pathologies

The Commission on the Intelligence Capabilities of the United States Regarding Weapons of Mass Destruction

– March 31, 2005

“Analysts did not question the hypotheses underlying their conclusions, and tended to discount evidence that cut against those hypotheses.”

Why Smart Executives FailWhy Smart Executives Fail

Executive Executive Mindset Mindset FailuresFailures

Delusions of a Delusions of a Dream CompanyDream Company

Confidential. Do not quote or copy without written permission. © Sydney Finkelstein, 2003.

OrganizationalBreakdowns

Leadership Pathologies

I.I. Executive Mindset FailuresExecutive Mindset Failures

Executive Mindset FailuresStrategy gone bad: doing the wrong thing

• Inaccurate view of reality

• Negative transfer

• One best way

• Ignoring change

• The Perfect Storm Fallacy

WebvanMotorola

Napoleon Snapple

Saatchi & SaatchiRubbermaid

Boston Red SoxBritannica

LTCM Chrysler

II.II. Delusions of a Dream CompanyDelusions of a Dream Company

Delusions of a Dream CompanyHow Executives avoid facing reality

• “The Firm”

• Just Say No

• Disrespecting competitors

• Customers and suppliers are wrong!

EnronInternet Start-ups

Barings Bank Snow Brands

Barneys Internet Start-ups

Schwinn Rubbermaid

Confidential. Do not quote or copy without written permission. © Sydney Finkelstein, 2002.

III. Organizational BreakdownsIII. Organizational Breakdowns

Organizational BreakdownsTracking down the lost signals

• Communication and control breakdowns

• Break all the rules

• No oversight

• Inappropriate incentives

Boston Red Sox Black Hawks 1994

Saatchi & SaatchiBankers Trust

WorldCom Sony

MotorolaLucent

Confidential. Do not quote or copy without written permission. © Sydney Finkelstein, 2003.

IV.IV. Seven Habits of Spectacularly Seven Habits of Spectacularly Unsuccessful PeopleUnsuccessful People

Habit # 1: Illusion of Personal Preeminence

Corporate Examples

Martha Stewart

Mossimo

Habit # 2: The Company is Mine

Corporate Examples

Adelphia

Tyco

Habit #3: All the Answers

Corporate Examples:

Wang Laboratories

Rubbermaid

Habit #4: My Way or the Highway

Habit # 5: Obsessed with Image

Habit # 6: Disregarding Major Obstacles

Habit # 7: Inability to Learn

Top 5 Takeaways

1. Test assumptions!

2. Teams win more than leaders win.

3. Make it easy to tell the truth.

4. Track warning signs like your business depended on it.

5. Only dead companies make no mistakes.