Diverse teams can often help to avoid poor decisions, but don’t count on it always, says David Adams
We have all heard the old line about how you learn more from your mistakes than your successes. Among the many wise words one might quote on this subject, Richard Branson has written that “you don’t learn to walk by following the rules, you learn by doing, and by falling over”. But there are also valuable lessons to learn about leadership from the worst mistakes made by other leaders.
Patrick Reinmoeller, professor of strategic management at Cranfield School of Management, believes most leadership disasters are the result of either “domination of decision-making by one individual who didn’t listen to anyone else, or you have complete alignment of people who all think the same”.
Readers of LEAD will understand the advantages of diversity at the top of an organisation, in particular, access to a wider range of ideas, expertise and perspectives. Diversity can help to prevent poor leadership decisions arrived at through groupthink – but diversity cannot always be defined in the terms you might expect.
The collapse of Enron was due to criminal fraud, but it was also a collective failure on the part of board members who did not investigate the fraud. A few Enron executives, led by the company’s chair Kenneth Lay, CEO Jeffrey Skilling and CFO Andre Fastow, spent years hiding billions of dollars lost in failed deals. Other board members effectively turned a blind eye to problems building up on the balance sheet. In 2001, Enron shareholders filed a $40bn lawsuit against the company, leading to what was then the largest corporate bankruptcy in American history.
“If you look at the Enron board, they were a group of diverse people, but they all had a personal stake in not speaking out,” says Reinmoeller. “In that sense, they were not diverse.”
Enron also showcased another common cause of leadership disasters: an unwillingness on the part of a leader to listen to advice that they did not like. One famous example of this leading to disaster was that in the months leading up to the fall of Lehman Brothers in 2008 (which subsequently broke Enron’s record to become the biggest bankruptcy in American history) CEO Dick Fuld is reported to have repeatedly forced the company’s chief risk officer to leave the boardroom during certain key discussions.
Teamwork can help an organisation survive disaster
Most mistakes for which leaders end up taking responsibility are the result of incompetence, rather than recklessness or criminal intent. But if errors are made by colleagues it is also a mistake for a leader to simply lash out, says British entrepreneur, Lara Morgan.
Morgan started her first business, Pacific Direct, which manufactures and sells brand-licensed toiletries to the hotel industry, when she was 23, in 1991. In 2008, she sold her stake in the business for £20m. She is still actively involved in a number of businesses today and acts as a mentor to other entrepreneurs. But she says she didn’t get to this stage without having to learn from “ridiculous mistakes” that she and her colleagues made. One lesson she says she learned is the importance of working as a team in the event of needing to recover from disaster.
“If you want to grow you have to trust people,” she says. “When someone ships goods to Korea, instead of Croatia by mistake, or someone prints 40,000 pens the wrong way up, losing your temper isn’t going to do you any good. Poor leaders who end up making the wrong decisions are the ones who don’t have the team support you require to get you through these situations.”
When it’s time to go, go
But perhaps the most painful lesson to learn from leadership disasters of the past is that there may come a time when a leader has to admit they are no longer the right person to lead the organisation. Camila Batmanghelidjh was the inspirational public face of the charity Kids Company from its launch in 1996 until its very public demise in 2015. During those 19 years the charity offered valuable support and inspiration to many young people in London, Bristol and Liverpool.
Unfortunately, over the same period the charity also outgrew the leadership and governance structures created during its early years. Batmanghelidjh, the trustees and other organisations working with the charity, including local and central government bodies, all share some responsibility for its failure. Major changes in leadership and governance should have been made at an earlier stage.
The importance of moving yourself into a different role, if it is in the best interests of the organisation for you to do so, is also borne out by the experiences of some of the technology companies that have become the most successful businesses in the world. The founders of Google and Facebook reached a point where they knew it would be better to step aside and let someone with prior experience of leading an organisation come in from outside to serve as CEO.
By contrast, Travis Kalanick, co-founder of transport company Uber (pictured above), was finally forced to resign as CEO in June 2017, following a series of damaging allegations about the company’s management practices and culture and about his own conduct in particular. This is not to suggest that Uber does not have a bright future. But a failure on Kalanick’s part to understand that his continued presence as the public face of the company was undermining the company has prolonged the damage he caused. Hold on to leadership for longer than you should and you run the risk of undermining everything you have achieved.
This article first appeared in the launch issue of LEAD magazine.