When Bad People Rise to the Top

A number of business writers publish their annual choices for the worst corporate chief executive officers. Executives achieving this dubious distinction often presided over major declines in company financial performance, incompatible mergers, misdirected marketing strategies, failed product lines or major acts of corruption. Some of these CEOs were victims of economic and market forces beyond their control. Others worked diligently but were not capable of handling the demands of being a corporate CEO.

Observers are often amazed when executives with impressive track records are mysteriously transformed into corrupt and tyrannical monsters once they become CEOs. In truth, some rising executives had serious character flaws that were either hidden or ignored for years. Once at the corporate helm, an unmasking occurred as their greed, ambition or inability to deal effectively with people became painfully obvious. In his book,The Myth of the Out of Character Crime, forensic psychologist Stanton Samenow examined the criminal behaviors of seemingly respectable citizens. He discovered that these individuals had often managed to conceal their personality flaws and aberrant ways from public view. The same hidden-character phenomenon may apply to bad CEOs.

Corporate boards and search committees are not likely to detect personality problems of promising CEO candidates simply by examining their résumés or by conducting standard job interviews. My research in the area of white-collar crime and my examination of the careers of executives such as Enron’s Kenneth Lay, WorldCom’s Bernard Ebbers, or Tyco’s Dennis Kozlowski provided no clues of the devastating legal and economic troubles they would later cause. There are also less notorious executives who maneuvered their way into the upper echelons of organizations and created havoc by derailing strategic plans, eroding competitive advantages, creating public relations nightmares and destroying professional relationships.

This paradox of success raises the question of how corporate boards or CEO search committees can penetrate the facade of an upwardly mobile executive who is, in reality, a wolf in sheep’s clothing. What danger signals do these individuals exhibit, and what measures can be taken to reduce the likelihood of hiring a dysfunctional CEO?

What Constitutes a Bad CEO?

There are two chief characteristics of bad CEOs. First, they place their economic and psychological needs ahead of their professional obligations. Second, they compound their self-centeredness with deplorable interpersonal skills. Some CEOs manage their corporations with an iron hand and run roughshod over anyone who gets in their way. They take ill-advised risks and they refuse the counsel of board members and major stakeholders. At the other extreme are CEOs who shirk responsibility and avoid difficult issues by delegating important tasks to top managers and by managing extensively through consultants or poorly organized task forces. These CEOs are quick to accept credit for the ideas of others as well as for successes that are largely illusory; their goldbricking may be concealed by public relations and media blitzes.

Bad CEOs possess the work ethic and intellectual wherewithal to succeed, but they allow their personalities and lack of emotional maturity to sabotage their work, their organizations and their careers. Some CEOs instigate trouble with colleagues, investors, clients and board members. Tales of inept and abusive individuals have become part of the folklore in some organizations. These often ruthless and remorseless CEOs flaunt their power through tirades and sarcasm, aggressive questioning about arcane matters, predatory smiles and contemptuous glares. Others are arch manipulators who control or distort information sent to investors, board members and key executives. The worst of these CEOs condone major frauds and massive misappropriations.

Why Are Bad CEOs Hired?

An intransigent executive may be selected as CEO because he is a founder or early investor who has been associated with the company for many years. Former associates of a troubled executive may be reluctant to discuss a colleague’s personality problems for fear of retaliation. Some upwardly mobile executives have built their reputations on technical prowess rather than on people skills, a weakness that can become painfully obvious once they assume the top job. Still others work their way upward by using time-honored impression management techniques. These highly institutional executives are often fixtures at corporate and public functions where they employ liberal doses of charm, charisma or surface sophistication to hide deeper psychological issues.

An aspiring CEO’s early career successes or single stroke of genius may eclipse faults that will later spell disaster. An executive’s meteoric rise in an organization may outpace her emotional maturity. Excusing the boorish behavior of an executive by touting her lofty talents and intelligence as compensating traits is a form of denial that can later have serious consequences. These personality problems should set off alarms in the minds of board members, but a phenomenon known as “past-record anchoring” may blind them to the fatal flaws of their rising star. Ambitious but dysfunctional managers may be hard to spot by board members who see them infrequently or who know them only from a distance. This problem is exacerbated when a CEO is hired from outside the organization. Furthermore, bad executives may be able to control their personality problems when working at lower levels, but they begin to unravel as the stress and visibility of the top position takes its toll.

When an inept, abusive or corrupt CEO is sent packing, nearly everyone breathes a sigh of relief. In the meantime, the board members who hired the erstwhile CEO are left to wonder how they could have been so blind to danger signals that now seem so obvious.

What Are the Danger Signals?

Early warning signs may enable corporate boards to spot bad CEO candidates. Here are some potential danger signals:

An obsession with acquiring prestige, power and wealth.

Managers who appear preoccupied with the trappings of power and the size of their compensation packages often show their hand long before they are ready to assume the top position in a corporation. This attitude — along with an inability to defer gratification — suggests that a CEO might place personal and financial interests above professional and organizational interests.

A reputation for shameless self-promotion and other self-aggrandizing behaviors.

Narcissistic individuals are quick to ingratiate themselves with anyone who can help them and to undercut anyone who gets in their way. Executives who constantly thrust themselves into the public eye through their manipulation of the news and advertising media, who are always looking for a better job, or who trumpet their successes (yet quickly distance themselves from setbacks) are sending strong signals that their egotistical ways may eventually cause major problems.

A proclivity for developing grandiose strategies with little thought toward their implementation.

Strategies are easier to craft than to implement. Executives with a reputation for speaking in glittering generalities while ignoring critical implementation issues are bad CEO candidates. CEOs whose visions exceed their grasp may assume that executives and managers at lower levels will magically turn the strategy into reality.

A fondness for a data-driven management style that overshadows or ignores a broader vision.

This problem is the flip side of the preceding one. Some bad executives find comfort in regulations, processes, assessment activities and data, especially when they can use these things to hide or avoid problems, or to entrap and humiliate subordinates. Corporations need CEOs who do more than serve as chiefs of the “process police.” Executives who focus heavily on rules and numbers usually have little time left for developing broader visions and strategic road maps.

A management style that focuses on power rather than on belief, commitment and integrity.

An edict-based management style may be appropriate when decisive action is needed to avoid a major catastrophe. CEOs, however, usually have to be consensus builders. A reputation for implementing major strategic changes unilaterally or forcing programs down the throats of reluctant managers is a recipe for disaster.

A history of an impulsive and flippant decision-making style.

Complex business problems have complex causes. Major organizational problems are rarely explained or resolved by quick, one-dimensional solutions. CEOs who approach decision making with clever one-liners rather than with balanced, thoughtful and informed analyses can expect to encounter difficulty.

A knack for inconsiderate acts toward others.

Organizational citizenship behaviors have received much attention in recent years by management scholars. Bad CEOs may get high grades on three dimensions of OCB — conscientiousness, civic virtue and taking charge — while falling short on the dimensions of altruism, courtesy and sportsmanship. Individuals who exhibit rude behaviors such as failing to express gratitude, ignoring the discomforts of those around them, or using profanity in the mixed company of strangers are sending strong signals that they have little regard for the sensibilities of others.

A love of monologues coupled with poor listening skills.

Individuals with poor interpersonal skills are rarely good listeners. Poor listeners send a message that they have little respect for the ideas and opinions of others. Bad CEOs often interrupt incessantly; their monologues can be overpowering, making it impossible for colleagues to get their ideas on the table. Executives with poor listening skills rarely profit from the wisdom of their associates.

A tendency to display contempt for and to second guess the ideas of others.

Some bad CEOs are spring-loaded to reject any idea that is not their own. They summarily dismiss proposals and assume that no one can match their brilliance or creativity. Such CEOs are proficient at criticizing the decisions of subordinates (after the fact), but they are rarely willing to provide meaningful guidance (before the fact). Paradoxically, hypercritical executives (like hypercritical sports fans) often have few stellar accomplishments of their own.

A history of emphasizing activity over accomplishment.

Energy without objective rarely leads to improved organizational performance. Beware f CEO candidates who evaluate managerial successes by busyness metrics such as hours worked, activities held or meetings attended. These executives may be ill-suited to lead companies that compete on quick responses to market changes and that measure success through hard productivity, sales and financial measures.

A career marked by numerous misunderstandings.

Managers whose careers are checkered with conflicts and vendettas often euphemistically characterize their clashes with other people as misunderstandings. Much as in tales of domestic woe, there are usually two sides to such stories. One can predict with near certainty, however, that individuals whose careers have been marked by frequent interpersonal problems are likely to make bad CEOs.

A superb ability to compartmentalize and rationalize.

Dysfunctional people such as bad CEOs (or criminals) are skilled at compartmentalizing and rationalizing. I once heard a prominent professional person described by an associate as “someone who could cut your insides out, smile and tell you to have a nice day.” These individuals have learned to separate their good deeds and charm from their cold ability to destroy others. Other bad CEOs are skilled at rationalization. They deny culpability or claim that their actions are part of a big picture that others do not understand. When things go wrong, aspiring CEOs may deny that they have caused any real harm, or they may cite a higher social purpose to justify their bad decisions.

What Can Be Done?

Even sterling CEOs occasionally exhibit one or more of the danger signals described here. Potentially bad CEOs, however, usually possess several of these characteristics, and they exhibit them repeatedly.

There is no ideal method for selecting a CEO, and there may be no executive position that provides a true test of a person’s fitness to assume the top job. Boards are usually cautious when looking at CEO candidates from outside the organization. They are more likely to be lulled into a sense of complacency, however, when considering an internal candidate. Some suggestions for screening prospective CEOs — both external and internal candidates — include:

Disregard the time-tested rule that past success is a predictor of future success.

Nearly all CEOs are hired precisely because of their glowing credentials and accomplishments. Yet, the subsequent tenure and success of many of these individuals is abysmal. CEOs must cultivate relationships with an ever-widening range of stakeholders, and they must also manage conflicting and excessive time demands, ferret out bad news that is hidden from them, and deal with inevitable attacks on their character and competence. Beyond these prominent features, however, each corporate CEO faces a unique set of personalities and conditions in a new job. Predicting an executive’s performance in Corporation B by taking at face value his or her performance in Corporation A is a risky proposition at best.

Perform a thorough background check that focuses on a candidate’s integrity and interpersonal skills.

A background check should contain two components — a verification of facts (including work experience and educational credentials as well as criminal, credit and litigation histories) and an investigation of interpersonal skills. The latter should include extensive and confidential discussions with former associates.

Use experience-based interviews to test CEO finalists.

Experience-based interviews delve into how an executive has handled problems in the past. The board or search committee should hire a reputable industrial psychologist to help develop a list of interview questions that are tailored to the specific CEO position (not just a list of generic questions that apply broadly to most top management positions). Be sure to inform each CEO finalist that the search committee will perform a follow-up investigation to check the veracity of the candidate’s responses on experience-based interviews.

Examine the CEO candidate’s career progression.

Examine the speed with which a candidate received promotions and the circumstances under which the promotions took place. Did the candidate face a great deal of competition for promotions? Were the promotions part of a defined career path, or did they follow an uneven course that involved a sequence of unrelated positions? Did the candidate establish the foundation for his or her career progression by accepting stretch assignments, by earning an advanced degree or by obtaining professional certifications? Obtain information on the candidate’s performance evaluations. Pay close attention to how the candidate reacted when given new responsibilities that significantly increased his or her power.

Determine how much of an executive’s career success was based on favorable economic and industry conditions and the support of good colleagues and how much was based on the executive’s individual efforts.

It is easier to achieve success when one has the good fortune to be in the right place at the right time. Robust economic conditions, strong markets and a capable supporting cast create an environment for personal success. Most CEO candidates, however, have careers that span both good and bad times. The board or selection committee should pay close attention to how candidates performed with their backs to the wall when industry conditions were bad, when controversies arose or when difficult decisions had to be made.

Provide realistic job previews.

Once the field of CEO candidates is narrowed, the board or selection committee should provide each finalist with a detailed job preview. The job description for CEO varies widely from one corporation to another. There is a tendency to assume, especially with internal candidates or with candidates who have been CEO elsewhere, that the finalist already understands the trials and tribulations of being a CEO. An effective CEO must learn to walk a high wire with no safety net, and it is never wise to assume that a candidate has a realistic grasp of the uniqueness of the CEO’s duties and responsibilities at a particular corporation. For this reason, the preview should probe the differences between the candidate’s current position and the CEO position for which they are being considered.

Be clear about expectations and ethics.

The ethical expectations of the CEO should be clarified by the board from the outset. Provide as much information as possible to the CEO finalists about how the board expects shareholders, prospective investors, customers, employees, financial institutions, auditors, government regulators, political figures and other stakeholders to be treated. A clarification of these matters during the latter stages of the selection process may prevent ethical breaches later.

Avoid high-risk compensation practices.

Offer the new CEO a reasonable, but not extravagant, compensation package. Also, consider delaying the use of equity-based compensation, providing ample but limited travel and entertainment budgets, and controlling perquisites. The exorbitant CEO compensation packages of recent times have, in reality, placed the burden of proof on corporations to assume that a CEO is highly competent until proven otherwise. Perhaps it is time to shift the burden of proof back again and require a new CEO to show that he or she is as good as advertised. Once the CEO has demonstrated a high level of competence and integrity, the compensation package can be improved and diversified.

CEOS PERFORM MOST OF THEIR WORK behind guarded doors, and it is nearly impossible for outsiders to witness firsthand the dysfunctional personalities of bad executives. Inferences, however, can be made from the well publicized actions of top executives who have been responsible for recent major corporate scandals. All of the key individuals in these cases placed their personal needs ahead of their professional obligations. They were largely self-promoting and ruthless, insensitive to the interests of their stakeholders and remorseless about the damage they caused. When asked for an accounting of their misdeeds, these executives became indignant, shifted blame and tried to place their actions and themselves in the best possible light.

The message here is simple: During the late stages of the selection process, spare no expense in digging deeply into a CEO finalist’s background. Although there is no method for foreseeing all dysfunctional behaviors of executives, corporate boards can reduce the likelihood of hiring a bad CEO and, instead, hire one that is good, by following the suggestions set forth here. Corporate boards have, in recent years, been criticized heavily for their lack of due diligence and their inability to detect acts of malfeasance in the companies they have been charged with overseeing. Board members have also been held personally liable for the misdeeds of corporate CEOs. Because the CEO sets the ethical tone and dictates behaviors for executives and managers throughout the organization, the due diligence exercised by corporate boards during the CEO selection process is time well spent.