This is part two in a series on founding CEOs. Part one, in which I did get a bit carried away with a rotting fruit metaphor, proposed that founding CEOs typically stick around longer than they should. It went on to discuss the role and effectiveness of boards of directors in this process.
This post attempts to provide a logical framework for the key conclusions reached in the earlier post. Check it out:
Life is full of obstacles. Sometimes they're external, like earthquakes, competition, or pain-in-the-ass neighbors. Oftentimes we create our own problems. We call that being our own worst enemy. In any case, everyone faces barriers that are challenging to overcome. Sometimes we succeed, more often we don't. That goes for CEOs and companies, too.
This concept isn't limited to human behavior. It happens to animals and plants, even to planets and galaxies. Disease, draught, global warming, and intergalactic collisions are examples. In life there are biological factors, to be sure, but if you go deeper still, you find that the underlying cause is physics - thermodynamics, to be specific. It's called entropy.
Entropy - known in the human world as "s--t happens" - is actually a truth that goes far beyond car accidents and getting caught cheating. It describes an ever-increasing randomness that creeps into everything and can wreak havoc on otherwise organized systems.
Now, let's apply that to CEOs and companies. Executives spend most of their time working to meet operating goals. Time is precious and not much of it is spent anticipating and assessing external and internal strategic threats - that's consultant speak for the s--t that inevitably happens to companies.
While understandable, this means that executives often-times fail to recognize strategic threats or are not able to overcome them in time, i.e. before something bad happens that impacts operating results. That goes for both external events - such as changes to the competitive landscape, and internal issues - like technology development challenges.
Sometimes this is a one shot deal. Fine. Other times the behavior appears to be more systemic. In other words, for whatever reason, the CEO's decision-making or ability to rise to the challenges of office appear to be consistently, or at least often, ineffective. It doesn't matter why, only that it indeed happens, in fact happens to all of us. The only difference is that we are not all in a position to impact jobs, 401Ks, and shareholder value. In any case, boards are supposed to oversee CEO effectiveness and step in when that appears to be compromised.… Read more