Bosses who go off the rails

Nearly half of chief execs don't live up to expectations. So how can you tell the duds from the stars?

by Adrian Furnham
Last Updated: 09 Oct 2013

UCL professor Adrian Furnham offers advice on how to distinguish the successful high-flyer from the walking disaster who could wreck your company.

There are more than 50,000 books with 'leadership' in their title but almost none about a common phenomenon that few in business are prepared to talk about - screwing up. There may be studies of wicked, evil leaders, often written by historians, but there is almost nothing on the taboo subject of the charming, talented, high-flying CEOs who should have done brilliantly but instead fail or go off the tracks. It is not that there is a refusal to admit it happens, but nobody is prepared to talk about this particular elephant in the boardroom.

This would be understandable if derailment was rare. But the statistics say otherwise. There have been 12 papers published over the past 25 years that have made good estimates of management failure, the average of which is 47%. This kind of failure extends from imprisonment (for corruption, for example) and sacking to premature resignation. Management failure occurs when the person appointed to the job fails to deliver the set objectives, often with dire consequences. In short, derailment and disappointment among leaders are as common as success.

There are observable and hidden costs to all this. Overtly, a share price can tumble or a long decline be triggered, but it is the hidden costs that count for more. These include: demoralised, disengaged, less productive staff; the loss of intellectual and social capital as turnover of good people increases; and missed business opportunities.

Yet the paradox is that most of these failed leaders have had very successful careers. The derailed were once the high flyers, and the very qualities that helped them climb to the top also led to their demise.

But for many (especially those who appointed them), their failures come as a great surprise, though the clues were always there, waiting to be discovered.

The way most leadership appointments are made is by looking for evidence of certain attributes or competencies from prospective CEOs. Usually, more is better: you can't be too creative or customer-focused; it is impossible to be too analytic or have too much integrity - or even to be 'too good with people'. But the psychological evidence suggests the opposite. There is a theory, known as the 'spectrum hypothesis', which suggests that extremes of normality are abnormality. There is no clear dividing line between normality and pathology - it's a spectrum. Therefore, very high self-esteem may be seen as clinical narcissism.

So, it's important those involved in selecting CEOs look for evidence of characteristics that they do not want, as well as for those that they do (see below).

Executive derailment is a function of three things: very particular personality traits, naive followers and particular situations that create poorly regulated and governed businesses. First, the particular personality traits. Researchers in this area now talk of the 'dark triad' of subclinical psychopathy. In general, these individuals score high on anti-social and narcissistic personality disorders, while having Machiavellian beliefs and behaviours.

The three interrelated traits of the 'dark triad' side are arrogance, duplicitousness and emotional coldness. Because they are narcissists, they are eager for power; as Machiavellians, they can be exploitative charmers; and as psychopaths, they have an amoral - often immoral - nature. People of the so-called 'dark triad' have high levels of self-interest but low levels of empathy. They are therefore not interested in, well suited to, or good at long-term relationships where a degree of reciprocity is needed. Because of this, they are often eventually found out as the toxic leaders they are - so 'hit-and-run' is their preferred strategy.

But if they are articulate, bright and educated, as well as good-looking, the behaviours associated with the 'dark triad' probably help them climb the greasy pole of business life. The bright ones do well in the City. The less talented are more likely to turn out to be confidence tricksters, petty criminals and imposters. People of the 'dark triad' gain a reputation for boldness and self-confidence, pushing through change and cutting back dead wood. They are thought to be adventurous and often mischievous, sometimes bullies.

What about the second condition of CEO failure: the naive followers? Some types of people allow derailing leaders to thrive - after all, we get the politicians and leaders we deserve. But there is a type of follower that can be termed 'toxic'. Many have attempted to categorise these into different groups such as bystanders, acolytes, true believers or more simply conformers and colluders. Conformers tend to be immature with negative self-concept, while colluders are more selfish, ambitious, destructive and openly supportive of toxic tyrants.

Toxic followers become particularly dangerous when they sit on the boards of companies with a derailing CEO. Most have low self-esteem that they hope the leader will be able to boost. They also tend to be helpless and fatalistic, expecting the CEO to give them power and influence. A toxic leader meanwhile will reinforce toxic followers' sense of passivity while giving them hopes of escape. Such followers also tend to be morally immature: their sense of right and wrong is weak, and conformity to immoral behaviour dictated by the derailing leader occurs. Vulnerable, immature, impressionable adults make good followers of strong but destructive leaders. Under-socialised or morally undeveloped people are happy to endorse the violence of toxic leaders.

Toxic followers also yearn for rank and power: people ambitious for status and territory make better followers. The more they see there is psychological and material profit to be had by following, the more they will do so. If they also share the world views of the destructive leader, then they are more likely to become followers.

The third component of executive derailment is the social, economic and legal climate. The toxic leader does best in situations of flux and instability. Political, economic and social instability are very frightening, and they are able to exploit this, advocating radical means to restore peace, harmony and progress. They are also granted excessive authority and power that they are reluctant to relinquish. Next, the more that people feel personally threatened, and the more internal and external enemies they see around, the happier they are to follow toxic leaders who promise them security.

'Dark triad' leaders do best in organisational cultures that are uncomfortable around ambiguity and uncertainty; companies that have elaborate rules and rituals that offer easy solutions to complex problems are easier to control. Furthermore, the more disparity there is between rich and poor, educated and uneducated and high and low status, the more the toxic leader thrives.

But the most important factor is where corporate governance is weak, where power is centralised and those monitoring authority and responsibility are silenced. This is like removing the internal audit from an organisation. It means the end of constraint and oversight. The issue is always the appropriate balance between over-regulation and under-regulation. There is a cost to supplying the information required for good corporate governance. It can be that paying too much attention to internal auditing and the supply of accounting information taxes the organisation too heavily.

Some leaders feel quite rightly that they are held back, even trapped, by the requirements of corporate governance. They feel they cannot act quickly or boldly enough to do what has to be done. They see governance not as a wise system of checks and balances but as a suffocating system of bureaucracy that leads to long-term failure. Yet often business and political leaders have significant latitude over decisions and behaviour. But can this very discretion, this latitude, be a significant derailer?

Discretion is freedom, freedom is power, and power can corrupt. Some senior jobs involve a great deal of responsibility but not much discretion. Rules and regulations, watchful shareholders and media, in addition to financial and other constraints, reduce the opportunities of grown-ups to misbehave, make mistakes or lose the plot.

Good leaders seek feedback from trusted, honest observers throughout their career to monitor how they are doing. Next, they seek out opportunities to develop, learn or improve important skills. They also seek a formal or informal coach or mentor to help them through times of major change or transition. In short, they seek out sources of assessment, challenge and support.

Those prone to derailment don't do this. Through hubris, anxiety or lack of insight, they have to be given 'developmental' assignments and coerced to take them on. They might go on short, taught leadership programmes but few cite those events later as crucial ingredients in their development. They need opportunities to examine their style, strengths and weaknesses with intensive and honest feedback. Paradoxically, perhaps an early career failure or mishap can be an excellent learning experience so that mistakes are not repeated.

Coaching for executives can help a great deal. Some organisations have prescribed mentoring where managers at a certain level are mentored by a person above them, but not all derailment can be prevented. Paradoxically, those who need it most also resist it the most and benefit from it least. It takes a highly skilled coach to confront very senior managers or leaders and help them to avoid derailment. However, much can be done to help the stressed leader who is crossing over the thin line between poor management and pathology.

The cost of derailment is high for individual managers and their family, peers and subordinates - and for the company as a whole. Often derailment is quite unexpected. Yet, nearly always, a more careful and critical review of derailed leaders' biographies will reveal the signs that derailment might occur. But by then it's too late. Organisations can reduce rather than prevent or eliminate the prospect of their senior leaders and managers derailing by ensuring good governance and strong management processes. Leaders need enough freedom to manoeuvre, but not unlimited power.

All leaders work with top teams - usually the board. These groups can easily become dysfunctional and themselves be a cause of management derailment. So, it's desirable to have someone monitor the health of boards. There are many stages where derailment may be addressed - the most obvious are recruitment and selection. There is now much more interest in this issue and excellent psychometrically validated tests to evaluate the dark side of personality, which can indicate areas of concern about leaders' behaviour under pressure.

The decision is: do you choose to recognise the elephant in the boardroom and do something about it? Or do you keep your head buried in the sand?

CEO CHARACTERISTICS TO SPOT AND AVOID

Arrogance - They are right and everybody else is wrong

Melodrama - They want to be the centre of attention

Volatility - Their mood swings create business swings

Excessive caution - They can't make important decisions

Habitual distrust - They focus on the negatives all the time

Aloofness - They disengage and disconnect from staff

Eccentricity - They think it is fun to be different just for the sake of it

Passive resistance - Their silence is misinterpreted as agreement

Perfectionism - They get the little things right even if the big things go wrong

Eagerness to please - They stress that being popular matters most

THE DIFFERENT TYPES OF CEO ODDBALL

Aberrant

The aberrant leader demonstrates two traits: unusualness but also a departure from acceptable standards. Think asking the PA to go down the corner to buy the coke.

Anti-social

The mild version is anti-social in the way selfish people are, but the full-blown believers display downright delinquent behaviour, such as uncontrollable tantrums.

Dark Triad

They've got the lot: lords of arrogance, duplicity and emotional coldness, whose brightness masks their bullying. To adepts of the dark triad, relationships are for losers.

Derailed

Believing their own hype and their supine followers, these deviate from the path and are then unable to move forward. Often linked to the next word in the dictionary, deranged.

Despotic

Teamwork is for ants, what this company needs is the smack of firm government and no-nonsense clarity from the top. Whinge all you like, at least I get things done.

Destructive

Used by historians to describe a particular leadership style. Long gone are the days when a CEO steered his company onto the rocks and bailed out before it sank.

Incompetent

This implies the absence of something required rather than the presence of something not required. Such leaders' passivity can be as damaging as overt destructive behaviour.

Malignant

The creatively vicious business leader, while rare, is not confined to episodes of Dallas. Maliciously causing pain to staff or damage to assets is par for their course.

Toxic

Strong but destructive leaders feed on immature, vulnerable followers, creating a toxic dynamic where selfish or fatalistic staff reinforce a leader's corporate violence.

Tyrannical

Tyrannical leaders show arbitrary, oppressive and unjust behaviour. They tend to usurp power and brutally oppress those they command. Think Julius Caesar in pinstripes.

- Order The Elephant in the Boardroom by Adrian Furnham, professor of psychology at University College, London, and published by Palgrave Macmillan, online and take advantage of our discounted price of £20 (RRP £25) plus p&p. Visit: www.palgrave.com/furnham entering WELEPHANT2010 at the checkout. The offer lasts until 1 July 2010 and is only available in the UK and Europe.

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