After a string of recent high-profile business collapses, the BBC recently explored what it calls the ‘deadly sins’ of businesses.
The article looks at some of the traps once-successful firms can fall into – despite the best leadership, cutting-edge products or services, and ranks of expert advisers.
Here we share the ‘deadly sins’ and advise on how you can try to avoid them. What are the bear-traps of the corporate world?
The dictionary describes hubris as ‘excessive pride or self-confidence’.
The BBC article uses the example of Northern Rock, the failed mortgage lender, to illustrate the dangers of this excessive pride. When new chief executive Gary Hoffman walked into the bank’s offices in Newcastle in 2008, his first impression was that they were ‘palatial’.
New, even more luxurious headquarters were being constructed, despite the fact that the government had had to take over the failing institution earlier in the year as it wavered on the point of collapse.
Mr Hoffman felt that ‘The leadership had lost connection with the real world’, cut off from their colleagues and customers. He contrasts his current company, the insurer Hastings, where management spend a lot of time with staff and understand ‘ground level’ concerns.
This failure to understand firm culture was also noted as one of the mistakes board members make in a Forbes article earlier this year.
Running a company by fear is another deadly sin. The article quotes Bill Grimsey, a veteran of the retail world, who was appointed chief executive of the DIY chain Wickes at a troubled time in its history, in 1996.
Grimsey often used to spend a week each year working at a different branch to find out what problems the staff were having. He believes the leader’s influence on the business cannot be underestimated, and that those who rule by fear, leaving managers worried for their jobs, have largely forgotten what really matters – the end customer.
This type of fear-focused environment can lead to the type of deception where numbers are faked to keep bosses happy. An open and honest culture is always going to encourage transparency and – often very valuable – insights from the shopfloor.
Growing fast isn’t always difficult, but doing so without taking on too much risk can be trickier.
Hoffman references the low-cost airline sector, where rapid growth has not always been matched by profitable business models.
Growth for growth’s sake is not the way to go. It’s essential to ensure that any growth is ‘anchored in the principles of profitability’.
What makes this more challenging? The secret to profitability isn’t a static thing. Consumers change and their interests, buying preferences and behaviours evolve. Businesses that are complacent don’t evolve with them, and find themselves left behind by their more agile, smarter competitors.
Boards of directors can spend far too much time worrying about the pay and bonuses of their top executives.
Mr Grimsey says that ‘If you look at the history of the last 15 years in corporate Britain, particularly retailing, particularly public companies, these people have become greedy. You've got to stop being greedy at the top and start sharing’.
Retailers like John Lewis – where all staff are ‘partners’ and share in the profits of the business – are cited as good examples of behaviour around pay.
Some companies have failed in the past by putting too much emphasis on creating an impressive facade – at the expense of delivering behind the scenes.
This can manifest itself in excessive spending on branding initiatives, reorganisations, or implementing management fads. All of which can lead to a reliance on expensive external advisers.Some companies have failed in the past by putting too much emphasis on creating an impressive facade – at the expense of delivering behind the scenes.
The article cites Enron as an example of a company that built a brilliant facade but hid deep-rooted problems. Although it had been publicly feted for disrupting the energy sector, behind the scenes it was hiding billions of dollars of debts and became, at the time, the biggest failure in US corporate history when it collapsed in 2001.
It can be all too easy to fall prey to some of these deadly sins. But they are a good checklist for boards. Being aware of the potential pitfalls is the first step in avoiding falling into them.
Having a board that runs efficiently, and makes informed decisions in s timely way, can be the first step in achieving this awareness.
To read more about how one board, at ABF, the Soldiers’ Charity, improved efficiency and the quality of their board papers, you can read our case study. The case study is free and you can download a copy here.
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