It’s convenient to believe that companies get into strife because of external market factors–scan today’s Financial Review for the usual market contexts: rising interest rates, falling construction, changing trade tariffs, international competition, bad weather, and so forth.

However, there are companies that thrive in tough times and there are companies that sink in good times. When we listen to the stories from executives that have lived through company failure, their stories reflect organisations that have not had the courage to take action around people, and to do so in a timely manner.

There are common themes that emerge and these include:

The Board Composition 

Many Directors are hard-working but not all boards are composed well.

In one retailer, only one Director had retail skills. They chose the director with retail skills as a “name” to provide credibility. He was, however, busy, lived in another city, attended meetings often by telephone, and rarely had time to pour through the company papers and the investment recommendations made by the CEO. He missed noticing the CEO overcommitting to retail lease agreements and other substantial matters.

Board composition, a skills matrix, and time commitment all matter.

The Founder CEO

Some Founders can change as their companies mature; others have their unique strengths and are not the best leaders at a different life stage.

In one technology company, the Founder was an extraordinary visionary and able to sell a story. As the company grew and moved along the life cycle curve, it needed a CEO that could embed processes and systems. The Founder seemed to have a new idea each day. This week it was to expand in China. Next week it was to have green chairs in the boardroom. The board noticed these behaviours but were held hostage by “but look what he has done to grow this company.” The company imploded because the lack of systems and processes meant it could not deliver to the large contracts to which it had committed.

The Finance Manager promoted to CFO

Great CFO’s are more than qualified CPA’s with finance experience. They go beyond to ask questions, to look around corners, and to play the role of co-pilot to the CEO, steering a big ship out through the heads.

In a consumer goods company, the most senior finance person was promoted to CFO but he had never worked in an ASX listed environment, did not have strong mentors, and was neither asking the right questions nor a strong communicator. Month after month, the Board and CEO made decisions relying on financials that provided an incorrect picture of the business. The sales team were giving away too much margin, there were business units bleeding cash, inventory was building up and going missing or aging. Without a true picture, the CEO continued investments in new facilities and was caught blind when the company could not service its loans.

The Sales Director with great relationships

Great sales directors fundamentally affect the overall performance of their business.

In many industries, the world of sales has changed and moved from relationship-based sales to professional selling. In one private equity portfolio company, the Sales Director knew everyone in the industry, was highly regarded and had a positive reputation. But as buyer firms changed their models, he continued to have networking meetings, visiting old relationships, but failed to grow sales. The CEO was reluctant to change the Sales Director because he had such rich relationships and he remained the Sales Director far longer than he should have.

Combinations can be lethal

These have been just some examples from so many. The common narrative is that organisations are often slow to make future focused decisions, being held hostage to a significant person’s past track record in a changing world. The situation limps along but it is when there is a combination of people not suited to their roles, that crashes happen: The time poor board that allows a Founder CEO to dominate; the relationship based sales director working with a CFO who is not a strong communicator… When things go wrong, you can go back and write a soap opera.

Courage to face the future

      The decision to promote or to retain a leader should not be a tool to reward past success but to assure future growth in an ever changing,
      complex world.

      Quoting from Stretch!, the book by Kroeger and Deans, based on AT Kearny’s study of 29,000 companies over 14 years: competitive growth
      isn’t dependent on outside factors, but on the internal actions a company takes.

      There are many hard working executives that suit different organisations at different times. Companies need the courage to put the right
      people on the right bus to achieve great results.