Why Smart Managers Act Collectively Like Idiots

Last Updated Mar 17, 2010 8:54 PM EDT

In a speech at an industry conference, the CEO of a prominent company once said, "Our industry is made up of geniuses that act collectively like idiots." Well, that phenomenon - smart managers acting collectively like idiots - doesn't just apply to large groups, like industries. It can also apply to small groups, like management teams.

I've seen it more times than I can count. An entire management team, a dozen or so executives, all very smart and accomplished, but completely incapable of doing the one thing they're paid to do: profitably grow their business. I mean, how exactly does that happen? Here's how.
When I first started consulting, I met with a former coworker who had become COO of a mid-sized, publicly held company. It had grown significantly through acquisitions and suddenly found itself diversified and geographically dispersed. It now lacked a single corporate vision to focus the entire company and a value proposition that explained to customers why the whole was greater than the sum of the parts. Moreover, its organizational structure and processes needed an overhaul so the business could scale and grow.

It would have been nice if the management team had planned for this before all the acquisitions, but at the time, I thought that was beside the point.

Long story short, I dove in and spent six months taking the management team through a relatively straightforward strategic planning and restructuring process. And as is often the case, once I got in and started peeling the onion, I discovered a number of systemic issues that explained why the company's business seemed to change every few years, why it wasn't consistently profitable, and why its growth depended on acquisitions.

You see, the company had a culture of debating but never resolving issues. I often witnessed the management team whip itself up into a frenzy and then degenerate down an endless rat-hole of dysfunctional banter. It was so common it was almost institutionalized behavior. The CEO seemed incapable of speaking the words, "Today, come hell or high water, we're going to reach consensus on a decision."

Well, since the CEO also had a dysfunctional lack of trust in his VPs, meaning every major decision required his blessing, nothing changed. The company failed to develop and implement a business model that enabled consistent profitability. Some quarters were in the black, most were in the red, and the stock traded up and down in a narrow range for nearly a decade.

But you know, the CEO didn't want to change. He wanted a consultant to come in and fix his problems, fix his management team, fix his company. He couldn't see that he was the problem. That it all stemmed from his issues. To this day, many years later, the company continues to flounder, and its shareholders, customers, and employees are the victims.

This is but one example of executive behavior I've witnessed dozens of times. Now, let's go back to the original question of why smart executives appear to act collectively like idiots. The answer to the problem is a failure of leadership. At its core is typically a dysfunctional CEO, fearful, controlling, and unwilling to risk upsetting his own applecart to effectively do his job. And all too often, the board of directors is in his pocket.

In the past I've argued that corporate-wide change management fails more often because of flawed strategy than the process itself. I still believe that's true, but now, I would add dysfunctional leadership right alongside flawed strategy.

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