Managerial Error and Financial Crisis

Article | Accountability Insights

by | Jun 29, 2009

Most companies fail because of managerial error, but not many of the CEOs and senior executives involved in that failure will admit the fact.

Most companies fail because of managerial error, but not many of the CEOs and senior executives involved in that failure will admit the fact. Instead of taking responsibility for shortfalls and failures, far too many of today’s business leaders offer every conceivable excuse from a shortage of resources to inept staff to competitor sabotage. From leaders in the executive suite to entrepreneurs in the garage, it seems that no one wants to take responsibility for their misjudgments and mistakes. That’s human nature; but it’s also bad leadership. Yes, shortfalls and failures occur every day. This is a natural part of business and life, part of the human experience; but attempting to duck responsibility for such shortfalls and failures serves only to prolong suffering, retard correction, and prevent learning. Only when accountability is fully embraced—which includes learning from mistakes and the associated adjustments to performance—can a person, a team, or an organization get back on the path to success.

Unfortunately, too few want to hear the brutal facts associated with bad news. No wonder the public’s confidence in the economy, financial institutions, the stock market, business in general, CEOs, and senior executives has plummeted to new lows. Here are a few examples of less than fully accountable behavior: AIG executives continued to spend millions on lavish retreats at expensive resorts even after the Federal Government agreed to an $85 billion bailout of the insurance giant. Salomon Smith Barney secretly gave Clark McLeod, former CEO of McLeodUSA, shares of 34 “hot” IPOs. McLeod’s insider trading gained him $4.8 million on the first day of trading. Goldman Sachs received $10 billion in a government bailout and then earmarked billions for bonuses to well-heeled employees. Public pressure finally caused the top seven executives to forego their bonuses (but they still made hundreds of millions in compensation).

Even though Wall Street needs revamping, that’s no excuse for any company, executive, manager, or individual to sit back—waiting for the government to fix things, blaming others for any failures, pointing to circumstances beyond their control for poor results, or taking undue personal advantage of the situation. When bad things unexpectedly happen, as they always do, or when serious errors in judgment occur, as they do more often than most of us wish to admit, accountable companies and their executives acknowledge reality, take action to control the damage, set a new course for achieving results, and refuse to exploit stakeholders for personal gain.