Five mistakes a CEO should avoid

The story of General Electric’s downfall from being an indomitable behemoth to a tier-II company, has been well documented. At the turn of the 21st century, the 128-year old company, which was valued at $600 billion, began losing its immense wealth right after the former CEO, Jeffrey Immelt, stepped down in 2017 after 16 years at the helm. In a book documenting the organisation’s collapse, the authors paint a portrait of Immelt pursuing a series of bad decisions that led to GE’s mounting problems.

It was Immelt’s successor, John Flennery, who found out that the well had been drained of its resources during his predecessor’s tenure. The American multinational company’s balance sheet showed big problems — the profits were mostly on paper alone, costly inventory had been accumulated just when the market for that inventory was shrinking, and essentially the business was out of cash.

This goes to reiterate the importance of a CEO’s role within the company. A good leader can make or break a company, even pull it out of a crisis. Titan’s miraculous recovery of its Tanishq business under its new leader can be taken as the perfect example.

Being the top dog at a company, even the smallest of acts can have huge repercussions. Therefore, there are certain things that a CEO should avoid doing at all costs. For instance, meeting with one employee right after assuming the chair, rather than first approaching the entire team, may give the impression to the other employees that there is already a ‘favourite’, setting off alarms in their heads.

“CEOs cannot afford to avoid criticism. Instead, they need to review the merits and respond suitably. the right degree and manner of response is absolutely essential.”

Suffice to say, the job of CEO requires one to walk a tightrope at all times.

We have outlined a few qualities and acts, which CEOs should avoid at all costs if they wish to lead the organisation to success or sustain its growth.

Being arrogant

Confidence in the face of adversity or doubt is a good quality. However, too much of it can become toxic, leading to arrogance.

More than alienating employees and damaging relationships, arrogance in a leader can adversely affect the business as well. Confidence will certainly boost one’s perseverance to face adversity, but at the same time, overdoing it will leave one unable to take any inputs, all the while leading a functioning business to ruin. Even well-established corporate giants are not impervious to setbacks. Although they may assume they can take a few hits, in the longer run, this usually leads to failure.

The downfall begins when those at the helm lose touch with reality and begin to assume the ability to do things, which they cannot. Just like that, the focus shifts from the business to one’s own self.

This is how leaders lose credibility.

Window dressing

Spinning positive stories when there really are not any to tell, can be called too much of optimism or straight out lying. Either way, the results are not going to be pretty. If we take the example of the current crisis, for a leader to keep the employees in the dark about the condition of the company would be unfair and could induce a huge shock when things go south.

This does not mean that optimism is undesirable, just that its dosage should be limited. Optimism needs to reach a balance with a realistic approach. The CEO should take into confidence those in the upper ranks, about the company’s status and the exact numbers, if it is in a crisis. For those in the lower rungs, complete communication of information may be unnecessary, as it will lead to a decrease in morale among the workers.

Samir Bhiwapurkar, head-HR, Japfa Comfeed India, believes in a 70:30 approach in such cases. He says, “A leader should be 70 per cent optimistic and 30 per cent realistic in his approach. With the upper management, one needs to be more realistic and open, while at the employee level it is important to keep the motivation and morale high.”

Being intolerant of criticism

It is true that criticism is a natural part of leadership. If nobody is criticising the leadership, then maybe one is not leading correctly. Leaders who do not like to hear their ideas criticised would seldom hear objections from the managers, who would rather play it safe than jeopardise their career prospects.

An inability to take criticism results when the leader has a vested interest in the decision-making. Eventually, this stereotypes the leader, weakening his or her authority. To reinstate oneself in the eyes of the rest, leaders may end up making poor choices to validate their leadership, both to others and their own selves.

Babu Thomas, CHRO, Shalby, says, “CEOs cannot afford to avoid criticism. Instead, they need to review the merits and respond suitably. A right degree and manner of response is absolutely essential.”

Taking cost-saving measures too far

Maintaining the financial health of the company is a huge pressure on the leader and a constant source of concern. In times of crunch, it is intuitive to go into crisis mode and focus on cutting costs across the board. External pressures may tempt one to focus on immediate gains only and ignore long-term considerations. However, excessive pursuit of cost-cutting measures may leave the company with no way out of the problem. Even if the times demand frugality, certain investments in specific areas need to be made, or rather, sustained. The people aspect in this matter is of particular importance. It is quite all right to admit a financial crisis to employees, who are more than willing to take the journey.

Treading the tested path and avoiding risks

As the times have shown, a crisis can force leaders to take risks and think out of the box. It is not just the current crisis but in trying times, the organisations that have climbed out of the disaster pot have been those with adaptable leaders. Leaders who are open to embracing unconventional measures are usually the ones who manage to reach solutions. Of course, risk taking is a calculated decision, and best avoided if the health of the organisation is at stake.

“A leader should be 70 per cent optimistic and 30 per cent realistic in his approach. With the upper management, one needs to be more realistic and open, while at the employee level it is important to keep the motivation and morale high.”

For any CEO, the real test of strength is when they hit rough waters. In a crisis, the CEO will have to walk the tightrope, balancing all decisions on the hope that they will be able to lead the organisation out of danger. Even when it is smooth sailing, being unaware of the reality and making bad decisions will ultimately lead the business straight into stormy seas.