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Three More Reasons Why CEOs Fail

Jul 19, 2008
There are two main reasons why chief executives fail to hang on to their jobs: a decline in the company's finances, and failure to communicate bad news in the best way. But there are many other reasons, too, that can contribute to a CEO's lack of success.

Here we'll take a look at three that concern key stakeholders in the business. And, if you plan to be a chief executive yourself one day, I'll offer some strategies that will help you to avoid the pitfalls many others have fallen into.

1) CEOs are first against the wall in the investor revolution.

These days, more investors are taking an active role in companies whose shares they own - and you'll get the chop if they decide you're not doing enough to boost their money.

Taking one example from recent history, Michael Eisner of the Walt Disney Company learnt the hard way what happens when you lose shareholder support. After 18 years at the top of the company, Eisner was found wanting by 43 per cent of shareholders at the US media group's annual meeting in 2004. They withheld their support for his reappointment as both chief executive and chairman, and Eisner had to resign as chairman. This was not enough for the shareholders. He had to leave the CEO role early, too.

What you can do:

You can help to reassure investors by having non-executive directors on the board, even if you don't have to. It also helps to keep the non-executive directors fully in the loop on your communications and your strategy.

Non-execs won't make your life easy - independent directors are increasingly holding executives to account. But they are the single most important thing to prove that you and your board have the shareholders' best interests at heart.

2) They lose the boardroom battle.

ABB, the Swiss-Swedish engineering group, amazed investors when it announced the departure of Fred Kindle, its respected chief executive, after "irreconcilable differences about how to lead the company". Kindle had enjoyed both personal success - being named Swiss Entrepreneur of the Year a few months earlier - and professional triumph, sorting out ABB's big asbestos litigation problems in the US, improving group performance, and achieving a successful restructuring.

Investors concluded that Kindle didn't get on with the chairman, and so he paid the ultimate price.

What you can do:

Some leaders seek to avoid disagreement by surrounding themselves with friends. But this can backfire. By excluding critics from the boardroom, you may set them loose to undermine your position. So there needs to be room for all views within the boardroom - and you need particularly to listen to those who disagree with you.

Make sure you can have a good fight with the board. Hire a high-level facilitator to get your issues out in the open as much as you can. The time to do this is in the easy times. When the going gets tough, it's too late.

3) They fall for merger mania.

When Carly Fiorina lost her job as CEO at Hewlett-Packard, the computer-maker, in 2005, a failed merger was largely to blame. She had made merger with Compaq such a key part of her strategy, and fought so hard for it, that she became vulnerable. When the merger didn't push profits up, she took the blame.

Similarly, investors were surprised when the CEO of Kuoni, the premium Swiss travel group, quit at the end of 2007. Armin Meier's shock move followed his company's failed merger with First Choice of the UK, a collapse that prompted boardroom ructions and the resignation of its chairman.

What you can do:

Recognize that few mergers work instantly. Make sure you manage the expectations of all the players - keep them realistic. Your job is to broadcast as much news about the ongoing success as possible. Stress any and every success the merger has. Promote any innovation or new market entry, even if these haven't yet fed through to the bottom line. And when they do, shout it from the rooftops.

You must keep everyone - board members, investors, employees - informed of the long-term prospects for the merged company, and hold your nerve.

And it's not only in times of major change, such as mergers, that you have to keep all these stakeholders - board members, investors and employees - informed. Informed stakeholders tend to be motivated, enthusiastic stakeholders. And that's what you need if you want to succeed as a leader.
About the Author
If you want the leadership success you deserve, get the leadership training you deserve. Download more free articles and leadership training videos from Steven Sonsino, an international business school professor and author of the Amazon bestseller "The Seven Failings of Really Useless Leaders"
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