Early Symptoms of a Potential Corporate Collapse

With the recent demise of several high profile organisations, it is prudent to look at how organisations move from strong healthy thriving ventures on to the slippery slope that leads to collapse.

Some key behaviours that indicate potential management danger at board level include:

  1. Autocratic leadership with minimal consultation.  There are times for autocratic, ‘command and control’ style leadership within civilian organisations.  Such a leadership style can be very useful for crisis management, turnaround situations or when there is a need for realignment. This style, is however, less productive in an enterprise that is in a ‘sustained’ growth or ‘startup’ phase.  The leader needs to lead with a vision and gain input from the senior management team on how best to move forward.  Humility in a senior leader allows them to recognize that they don’t know everything just because they are called  ‘leader’ is really important.  If you are a leader surround yourself with great people, leverage their knowledge, experience and talent and lead the team with insight and compassion.
  2. Lack of ownership or accountability.  Senior management and leaders need to be accountable for their areas of responsibility, their actions, their behaviours and their performance.  Everyone should know who is responsible for a feature or factor in the business and that person must take action to meet the levels of performance expected and agreed.  Being accountable also means that poor performance can be assessed and someone helped in their pursuit of the target rather than no-one acting to resolve the issue.
  3. Unbalanced senior team.  If everyone is thinking the same way then no-one is thinking!  Having your best chums, your praetorian guard around you may feel reassuring but too much similarity in the senior team reduces any creative friction and frank debate, leading to ‘groupthink’ and thereby danger for the business.
  4. A weak financial director.  Cash is king, so someone needs to know the financial position really well and control the costs.  A weak financial person will be bullied, cajoled or ignored by the team, leading to financial danger.
  5. A combined chairman and CEO.  In broad terms, the chairman runs the board of directors and the CEO runs the business.  The CEO is responsible to the board for business performance so having a CEO responsible to himself as chairman of the board leads to a situation where there is no real governance of the business.  These 2 roles must be kept separate.
  6. A lack of management depth.  The senior team holds the business, its assets and its potential in trust for the owners.  To get the best return on this investment requires strong leadership across many disciplines.  A weak management team or one that has limited experience and depth will not be able to get the best performance from the business.  They will also not recognize that there is a need to act when things start to go wrong.  Even if they do act, the lack of depth and experience will limit their managerial options with potentially disastrous consequences.

As business leaders, we have a responsibility to the business owners, the customers and the employees to get the best out of the business and ensure that it endures.

Recognizing the symptoms that can lead to corporate collapse is critical in our stewardship of the company.

Dare to Aspire

Advertisements

2 Comments

Filed under Business, Improvement, Leadership, Performance

2 responses to “Early Symptoms of a Potential Corporate Collapse

  1. Tom Walker

    Are there any examples of failed companies that did not practice these prenciples?

  2. Hi Tom

    These are just indicators that you can look for to see if your management team are capable of rising to the challenge.

    A few examples that make the point are:

    Lehman Brothers – lack of management of financial risk

    UK Government – Going to war with Iraq over weapons of mass destruction that have yet to be found was a decision that was driven and not questioned – a clear indication of group think.

    Zavvi – lack of consultation and poor accountability

    Berrings bank – lack of accountability

    There are many more…Do you have one in mind?

    Yours

    Martin

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s