Over the years, the business world has seen many great leaders that have had a positive influence on the business community and on society.
Having said that, many businesses have also been negatively influenced by incompetent or unprepared leaders. They range from examples like Elizabeth Holmes of Theranos fame to Ken Lay of Enron, that ultimately destroyed their companies and were subjected to numerous lawsuits.
And then there is Sam Bankman-Fried, the Crypto Currency King!
INFLICT SIGNIFICANT DAMAGE …
Incompetent leaders can, and most likely will inflict significant damage and, in the worst case, can single-handedly destroy a company.
Companies of all sizes can be subjected to incompetent leadership. One might ask the question how does this happen?
How do incompetent individuals rise to the level of CEO, or other senior management positions?
And if they do, why don’t shareholders, board of directors or other stakeholders deal with the problem before it’s too late?
GOOD INTENTIONS & BAD OUTCOMES …
It is important to understand that most incompetent leaders are not committing crimes or intentionally destroying their company.
In fact, the most likely scenario we have seen is where an entrepreneur has a great concept to start a company and attempts to rapidly grow a company without the experience or management team that is capable of executing the strategy.
In our experience working with companies, the professionals at Revitalization Partners have seen many examples of incompetent management.
SIMILAR LEADERSHIP CHARACTERISTICS …
In most situations, incompetent leaders have similar characteristics that we can quickly identify.
For example, they often demonstrate a sense of charisma and confidence, however, frequently they do not have the ability to put together a cohesive strategy and ultimately push problems down the road.
And, to a large degree, they tend to be self-centered and narcissistic and only want to talk about what they believe they have accomplished, even when the facts don’t support their stories.
Others simply do not have the confidence to actually manage. Rather than having operational standards to which they hold subordinates accountable, they depend on being liked as opposed to respected.
When board members or other stakeholders question their thinking or confront them with the facts, they typically push back and tell them that they don’t understand their business, or in fact, blame the business problems on other factors.
A CLASSIC SITUATION …
One of the classic situations we have seen is when an incompetent leader will blame their lender for not increasing their credit line, or worse, providing an extension to the existing line of credit to accommodate their needs.
In most cases, it’s not the lender’s fault that the borrower’s business is not profitable, but nevertheless an incompetent leader most likely will try to blame them.
Likewise, they may try to blame their attorney for not providing good legal advice for handling a significant business problem. Again, the attorney is most likely providing sound legal advice, just not the advice that the incompetent CEO wants to hear.
Then, there is the situation where the CEO blames the direct reports for not properly doing their job. They often criticize one or more individuals for not accomplishing certain goals.
And, in many cases, while providing criticism, they are not willing to discipline or replace those individuals for a variety of reasons.
JUST LIKE ME …
In reality, incompetent CEOs have a tendency to hire management and staff that have similar characteristics as their own, and as a result compound the problem of achieving strategic or financial goals.
As this type of behavior goes on for a period of time, the real operational issues are not addressed and the company’s financial performance declines.
And, if the behavior does not change, the company faces a real crisis in incurring multiple months and years of losses that ultimately results in bankruptcy or a receivership.
AT THE FIRST SIGNS OF TROUBLE …
It’s really important for board members, shareholders, lenders and other stakeholders to challenge leadership at the first sign of trouble.
And the first signs may not be financially related. It most likely will be reflected in a loss of talent, people who will not work for an incompetent leader, or several important key vendors that decide not to do business with the company.
Challenging the CEO to explain why these things are happening may be the first clue that they are not managing the company properly.
And, if their answers are not definitive and accompanied by a sold action plan and timelines for improving the situation, it’s another sign that things will likely get worse in the future.
Monitoring the CEO’s performance and holding them accountable is vitally important in making sure the company does not continue down a slippery slope of decline.
Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.
