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The road to perdition

There is no simple formula for determining when a company is on the road to ruin, but there are a number of warning signs
Chandra Lahiri

The death throes of a business are similar to that of humans. They go through largely the same processes, and, if not administered to in time, often engender similar sorrow at their passing. The demise of the legendary Pan Am was universally mourned as the passing of an era, while timely treatment led to the celebra-ted recovery of Nissan. The difference between life and death, as it frequently is with humans, lies in the ability to recognise the symptoms of the disease in good time, and take urgent, even radical, curatives to it.

There is no simple formula for determining when a company is on the road to perdition, but there are a number of fairly evident sign-posts. While the appearance of any of these is not, in itself, fatal to the corporation, allowed to fester, it inevitably leads to extinction. As some would have it, there are really no sick companies – they are either dead, or they have a dormant spark within, simply waiting to be coaxed back to vibrant life. However, the longer the delay in committing firmly to a recovery plan, the more certain is the transition from the latter to the former state.

The inward-focused owner/CEO

Probably the most common cause of the downfall of businesses, this is the symptom most difficult to cure, given the powerful and privileged positions involved. There are seve-ral facets to this problem. Possibly the most tragic is the case of the well-meaning but inexperienced and ill-prepared owner who inherits control through some family event, and suddenly finds himself catapulted into a position of power. Such an event is often unexpected, and sometimes even undesired by the individual. Plunged into unfamiliar waters, he soon becomes oblivious to the fact that control was inherited, rather than worked up to, and eventually becomes convinced of his ability to 'see visions and dream dreams'.

The primary raison d'etre of the business – to deliver economic value to its shareholders and stakeholders – is lost sight of. Seeking comfort, he generally surrounds himself with those who echo his views, and this further blinds him to critical warning signals. Decisions are frequently based on emotional or family issues, rather than sound judgment, and actions based on whimsy, rather than objective rationale. Pressures, often quite subtle, to accommodate friends or family members supersedes professional competence. Unless helped back to reality rapidly, his is the completely unintentional but nevertheless certain kiss of death.

Another danger is the CEO who refuses to delegate, so untrusting of his team, or so conv-inced of his solo brilliance, that he destroys all sense of ownership and commitment within management. Frequently compounding this is a policy of recruiting poor managerial quality, essentially to prevent any possibility of the CEO's own competence being overshadowed. This leads to a demoralised, demotivated workforce, and eventually, to an insidious flight of managerial talent. This has, indeed, happened in several businesses in Oman. It is essential to appreciate that companies are living communities of individuals, and hence it is autonomy that leads to entrepreneurship. The CEO who understands that he is only as strong as his team, and that the true measure of his performance is his annual balance sheet, is the only one who can lead a company to glory.

As every high school student knows, you become who you hang out with. Equally, each board member has a definite responsibility to monitor the CEO's actions and keep him on the straight and narrow, especially in this vital area. All too often board members become complacent and superficial while a company appears to be performing well, ignoring potentially dangerous cracks that begin to form beneath the surface. At the end of the day, there is no more valuable asset for a business than the quality and enthusiasm of its people capital, at all levels.

The stranglehold of the advisor

Among the most pernicious and least easily discerned corporate diseases is the advent of the 'advisor' (or, sometimes, 'chief advisor', even in a team of one), who has no real oper-ational role or clear accountability within the corporate structure. An inexperienced owner, wisely recognising his vulnerability, often unwisely appoints an apparently loyal and trustworthy person to interpret the inputs of his CEOs or board for him. This function rapidly deteriorates into a filter, sifting, distor-ting and restricting information flow to the owner, through a prism designed to enhance perceptions of the advisor's own value, at the expense of corporate welfare. Allowed open access, such freebooters may even achieve a stranglehold that begins to control, or actually suppress, senior managers within an organisation. Vibrant, stable and healthy organisations have strong, experienced CEOs and effective boards, with unrestricted, direct communication between them and the owner.

The introduction of any additional channel here is a direct threat to the business, and, ultimately, to the owner. After all, a CEO, unable to communicate with the owner at an acceptable level of comfort for the latter, or a board unable to advise him effectively and professionally, is redundant. Equally damaging is the untrusting owner who undermines his CEO by covertly seeking information from his subordinates. If a CEO is untrustworthy, he should be replaced forthwith – undermining him, instead, can only do long-term damage to the fabric of corporate culture. While wisdom is clearly in recognising one's own limitations and seeking advice from those with greater experience, there is no doubt that such advice should be sought from either a really professional, knowledgeable board, or the CEO and his senior team, within the company. Loose cannons introduced into the corporate mix, more often than not, ensure the first steps on the road to perdition.

While the above symptoms usually occur in small and medium enterprises (SMEs), many of the others, to be discussed in the second part of this presentation, apply to both SMEs and larger organisations. The quality and style of leadership is always one of the most crucial differentiators between strong companies and under-performers.