Spotting disaster-prone CEOs

Many  a famous company has gone under because of some disastrous act or decision of some CEO. Instances of this in the financial crisis are legion- RBS, Bear Stearns, Lehman Brothers. Is it possible to identify and remove CEOs headed for disaster? Lucy Kellaway, FT columnist, thinks there is. She suggests the equivalent of a test of roadworthiness for cars.

She posits that hubris is the reason for the downfall of companies and CEOs. Ergo, the challenge is to spot signs of hubris. She thinks this can be done by using a questionnaire on board members, the CEO's personal assistant and the CEO himself:

The test could be arranged around a small number of simple questions such as: how would you rate his arrogance on a score of one to five? Has it increased recently? Has he changed his mind on anything in the past year? Has he done anything even slightly dodgy? In answering these questions, spineless non-executive directors would be discouraged from fudging answers by the promise of a prison sentence should they fail to be candid. 

 

I'm afraid the columnist is being rather simplistic. Assuming that we can get people to answer the above questions honestly, does it provide a basis for removing a CEO? I doubt very much. First, almost anybody at  that level would be given to a certain amount of arrogance: without it, perhaps, they wouldn't be there, and they would have to be less than human if the pay and power they commanded didn't go to their heads.

 

Secondly, it is the same arrogance that often produces results. When it succeeds, it is called aggressiveness, drive or focus. When it fails, people give it other names: overconfidence, recklessness, hubris. That is why, there is no dearth of arrogant CEOs who don't quite end up as disasters. And there are some modest CEOs who have much to be modest about.

 

The answer to disastrous CEOs has to be found elsewhere: in stronger systems, processes and dispersion of power at the top. The problem is not arrogance but the job description of the CEO itself. So long as you have so much power concentrated in one person, there is always the potential for trouble. Drucker once wrote that the CEO is not a person but a team, say, a team of three persons. Companies have found it impossible to embrace this principle or any worthwhile degree of decentralisation or diffusion of power. Until that happens, fasten your seat belts.