When a Company Fails, Blaming the CEO May Be a Mistake

President Harry S. Truman’s famous “the buck stops here” desk sign has been copied by many CEOs over the years, and for good reason: leadership is ultimately responsible for steering a company toward success through good times and bad ones. But when things go really bad, and a scandal hitsthere’s a tendency to over-focus on leadership failures. A new report highlights how ill-advised this can be, because villainizing these people isn’t helpful—in fact it can mask deeper systemic issues, or company-wide culture failings that may persist even if the apparently “toxic” leadership is ousted. In startup culture, where risk taking is part of daily life, this may be even more important.

The new study uses the high-profile (and outrageous) examples of blood testing startup Theranos, opioid scandal-tainted Purdue Pharma, energy firm Enron, and fintech company Wirecard, but its results are scalable to any firm that suffers a notable failure, even if it doesn’t lead to disaster.

The study explains that in the past scholars “have traditionally focussed on the individual leader as a heroic figure,” or a transformational force, notionally linked to good objectives. But more modern research has begun to focus on a fuller image of the company leader, including psychologically dark traits that can sometimes go hand in hand with the leadership personality type, as a report about Machiavellian tendencies in leadership recently demonstrated.

But as the controversial leadership examples at Theranos, Enron and so on show, in later analysis the “focus is generally on the behaviour, motivations and/or characteristics of individual leaders, with limited consideration of context.” In other words, leaders don’t lead companies in a vacuum: the broader actions of subordinates, cultural attitudes to following authority, and many other subtle factors all play a part. So when a disaster hits, there’s also the possibility of many internal or external influences having an impact. The study cites the relationship between Enron and its third party auditors, for example. Even the media can change things, as arguably happened with Theranos.

So the tendency toward scapegoating leaders after a serious failure can miss the mark, because other motivators for failure existed deeper in the company, or possibly outside it—hidden within its relationship with third parties.

The study authors suggest a new way of thinking about questionable leadership traits, Phys.org explains. Called the “Dark Pyramid,” the new model looks at harmful company situations through the lens of leadership, the interaction with internal factors and pressures from external players, and the result of a failure in the context of social, economic or environmental impacts. The idea is to set up a more context-sensitive model for analyzing disasters in an organization, without villainizing the leadership unnecessarily.

So far, this all sounds very academic and may seem disconnected from any complex problems or dramatic company-threatening issues that may have impacted your own business.