Here is a trick question for you: what is the reason for every death that had ever occurred throughout human history? Remember, I said it was a trick question. Your first reaction is to say: ‘are you serious? People die of all kinds of causes from contracted diseases, organ failures, murders, plane crashes, old age, etc. How can there be a single cause?’
The answer is technical rather than dramatic. Every person dies when the supply of oxygen to the brain is halted. In other words, irrespective of what triggers the situation such as a heart attack, a bullet, decapitation, multiple organ failure, etc., they all create the condition for oxygen failure to reach the brain. As we all know, you are pronounced dead when you are deemed to be brain-dead. I have to give credit to the board game ‘Trivial Pursuit’ for the above proposition.
Now, here is a similar question: What is the cause of an enterprise failure? Again, there are thousands of reasons why a business fails; that is beyond dispute. However, a perfect storm is created when a number of those reasons come to play to starve the business of cash, funds, assets, or ability to meet financial obligations. So, you can substitute money for oxygen to relate the demise of a business to the death of an individual.
I say you need a number of reasons to create the perfect storm because I do not believe it is typical for a single reason to bring down a substantial company. Here are some relatable reasons for business starvation and eventual failure:
- Ineffective leadership
- Infighting in the boardroom or amongst the executives
- Lack of vision
- Bad customer service
- Failure to innovate
- Failure to compete in the marketplace
- Over-reaching beyond the company’s ability to cope
- Malpractice such as tax evasion, fraud, or faulty products
- Lack of appropriate ‘value system’
I don’t doubt that here are many other reasons that can potentially cause a business failure. Each of the above points is a worthy discussion topic, which can demand a good segment in any MBA course. The one I would like to dwell on is the last point in the above list: ‘Lack of appropriate value system’.
Throughout my career, I have worked for or with many organisations, four of which were major companies who ultimately failed or came very near failure. Two no longer exist, one survived because the government rescued them from the brink of disaster, and the fourth is in the process of surviving by the skin of its teeth; I sincerely hope and pray they make it.
The common denominator between the four companies (apart from me working with/for them), is the failure of their value system. The other factors vary. I articulate the common reason as ‘lack of appropriate value system’ because in all cases, they had a value system which they articulated and promulgated to any and everyone who was interested. However, the leadership did not really believe in these values or failed to run their business in accordance with these values. In fact, a company, or any organisation always has a value system, irrespective of whether it is articulated or not. As individuals, we too have value systems, we call it ‘principles’. We live, or try to live, by these principles and only talk about them when we are asked to by our children and other family members or friends. These principles / value systems are our moral compass and if we fail to live by them or choose to set them aside for some misguided personal desire to unfairly gain, we invariably live to regret it.
One of the failed companies I worked for was a multi-national enterprise set up by three partners who had an innovative idea, defined their products, identified their client base and created a set of value system that propelled them from being a regional company on the East Coast of the USA to quickly becoming a Pan-American company with reputation for service excellence, effective products, and employer of people who understood and shared the company’s values, including putting customers, business partners and staff ahead of personal enrichment. Their philosophy finally crossed over to Europe and they experienced similar success. The partners all passed away and new generations of business leaders, who came through the ranks, took over and maintained this credo. Eventually, the leadership finally passed to individuals who came from outside the company and did not always share the same values; they wanted to leave their own foot marks on the business. This gave them the freedom to alter the focus of the business away from the customers, business partners and staff in order to increase share value, profitability and eventually bonuses for themselves.
The business improved the share value but, it now assumed a harsh, less caring approach, which normalized risk taking, rewarding short-term gain and punishing failure to improve quarter-on-quarter performance. They acquired businesses that were outside their core-specialism because they saw an opportunity to generate profit quickly but were unable to sustain this approach because they lacked the expertise in these new business sectors.
One by one, the various businesses began to fail and eventually, left with the original core business, it sold out to one of its competitors. It took approximately 50 years to start up a business, grow it successfully on solid grounds, expand nationally and internationally, go on an acquisition spree, and finally mutate into oblivion.
When I worked for them, I was involved in an annual event called ‘The Leadership Conference’ where senior staff from the various branches, subsidiaries etc., gathered at the company’s headquarters for a week of meetings, brainstorming, setting strategies, celebrating successes and so on. In my last but one year with them, the President / CEO decided to have a different kind of conference. He wanted to re-define the company value system, so it was more modern and appealing to the outside world. We came together to articulate a handful of values that we can all adopt and disseminate to our staff and the rest of the world. I do not recall the conference having any sessions on how to operate according to these values; we were just charged with making them catchy and easy to remember to quote in the right places.
To facilitate the whole workshop, the President / CEO engaged a very expensive expert on the subject of value systems. The gentleman gave us a lecture on the importance of values, how to define them and what to do with them. He gave an example of a specific value around: ‘respect of individuals regardless of their positions or status’. The President interrupted and asked: ‘could you elaborate a little more on that particular value in terms of how this can be applied in real life?’ Almost as though the scene was carefully choreographed, the President’s PA walked in and placed a piece of paper in front of him. He read it, stood up and walked out of the room leaving us and our lecturer wondering what possible awful news he had received. The expert walked over to the recently vacated chair and said: ‘Well, Mr. President, respect of an individual can be to listen to the answer you asked for in the first place’. The room fell silent for what seemed like eternity before the presenter carried on with his gig and left us to ponder the highly embarrassing situation we found ourselves in. We carried on as best as we could but the whole thing seemed pointless and a waste of time. On the last day, the President closed the meeting and explained why he had to leave the room so abruptly, he had a call from one of the major shareholders, which he had to take. It really did not matter by then; the damage was done.
I do not claim that the company failed only because of the inappropriate value system. I already outlined some of the reasons why it failed. What I do claim is that the company as a collective, was able to break its business mantra because it was not guided by a true moral compass, thus giving its key decision makers the courage to make risky and dangerous decisions which were not appropriate for the company business model.
I can almost repeat the story for the other companies and the dominant common factor will be the value system failure.
I always like to end these missives on a positive note but, it is not always possible or feasible to come up with glib and moralistic conclusion that one take away and apply. After all, we still have people go to prison, fall out with their family and friends. We still have companies fail on daily basis so, there is no universal cure to this problem because we are humans and we err as a matter of course. However, just as there are many people who live by their principles and lead a lawful life, there are companies that manage to survive and thrive through long periods of ups and downs.
Understanding, defining and living by an appropriate value system is a skill that can be acquired but, it doesn’t always have to be done in a classroom. Most of the time, individuals and organisations instinctively know their value system and find it unnatural to operate against it. Specifically, for organisations with many stakeholders, benefit from articulating their true values and communicating them to their staff, business partners and other stakeholders.
A word of caution: it is really critical for the leadership in an organisation to believe in, and live by, the values they preach; failure to do so may cause more harm than many nefarious activities they may engage in. The worst utterance by a leader is the old line: ‘do as I say, not as I do’.
