How Companies Choose to Fail?
Why do companies fail? There are lots of excuses offered by former leaders of failed companies: A bad economy is high on the list, excessive demands by unions, foreign competition, competitors who price below cost, irrational investors, a strong dollar that killed exports, and events beyond the company’s control. My intensive study of corporate failure suggests that 99.9% of companies that are no longer around choose to fail. Yes, they choose to fail! Corporate Leaders knowingly didn’t do the things needed to ensure long-term profitable survivability.
Every Decade 50% of FP 500 Companies Choose to Fail
A recent study we undertook of the Financial Post’s list of Canada`s 500 Largest Corporations (FP 500) found of those on the 2001 FP 500 list 256 had left the list by 2012. These we coined the “departed”. Of the “departed” companies very few, save for notables such as Nortel Networks Corp., declared bankruptcy or went into receivership. The majority of companies merged with or were acquired by another company. Among the “departed” are major icons of Corporate Canada: Alcan Inc., Petro–Canada, and Molson Inc. We found similar results in our study of Fortune 500 Corporations. We will report on that study in a subsequent Blog.
Decline is a Long Term Process
The decline and eventual failure of a leading corporation is a long-term process. Decline, as we will discuss in a future Blog, occurs in phases. Lurking behind the phased decline is the failure of the Leadership to do the right thing. Typically, the phased decline occurs over the term of several Leadership teams. The responsibility for the ultimate failure of Kodak, General Motors, and Bethlehem Steel rests not on the shoulders of only one CEO and his/her team but of successive CEOs and their teams. Generally, successive Leadership teams failed to do the right thing, each in turn walked down the ladder of performance.
Key Behaviours Which Foster Decline
Below is a partial list of key deliberate behaviours that foster corporate failure.
- Leadership takes the easy course
Leaders fail to make the tough decisions. For example, they acquiesce to the demand of Wall Street/Bay Street for short-term financial results or to a union’s unreasonable wage and benefits. It’s easier to say yes to these demands that will hamper the company’s future than to say no. There is a pronounced failure of Leadership in these companies.
- Leadership is allergic to risk
In taking the easy course the Leadership becomes allergic to risk. They take the safe route. In many instances they simply mimic the products/services available from competitors. They introduce few new products/services and reject anything that would cause them to change. Change, they view as involving too much risk.
- Entrepreneurship and Innovation
The Leadership forgets that their roots were created by an entrepreneur who brought an innovative service/product to market. They permit their firms to become so bureaucratised and structured around silos which prevent corporate entrepreneurship and innovation.
The culture of the company does not support corporate goals. The Leadership fosters a culture of management by committee with no accountability, an example being GM. The corporate culture can also be controlling, autocratic, and very political. Think here of those large utilities who no longer serve the public but rather their own interest. The culture can be clubby, demand only soft performance, and be undisciplined. It can be blindly ambitious to a degree that it operates in some instances beyond the law. Think of SNC Lavalin where authorities charged the company with bribery.
- Failure to Adapt to Change
The company fails to adapt to change occurring in their sector, or more broadly to the world around them. In the 21st Century, companies need to be constantly in “Transformational Mode”. Change in this Century is relentless. Companies must be constantly in “Abandonment”. Failure to abandon, to transform, results in being counted as a “departed”.
Our list is by no mean exhaustive. We would like to hear from you.
What do you think are the major reasons “Why companies choose to fail”