When the tide goes out

By Jo Whitehead *

(exechange) — December 1, 2020 — Our study of more than 50 stumbles (when the CEO of a large company leaves after a period of poor performance) found that 70% were due to taking on an avoidable growth challenge that turned sour.

Examples include failed acquisitions (Bank of America Corp.) or disappointing diversifications (A.P. Moller-Maersk AS, the shipping company, into oil; or Anglo American Plc into iron ore), in which a cyclical downturn in the relevant market (financial, oil, ore) exposed a questionable strategy.

Our study was for 2007 to 2016. We also analyzed exechange data for 2017 to early 2020. Interestingly, in this period, there was a reversal — with about 70% of the stumbles being due to a failure to address an unavoidable challenge. For example, John Flannery was judged unable to deal with long-standing issues at General Electric Co.

The difference? The earlier period saw sharp downturns in the oil price, iron ore and commodity prices and the financial crisis, all of which exposed questionable growth strategies.

However, between 2017 and 2019, most markets trended upwards or were flat. In the words of Warren Buffett, “only when the tide goes out do you discover who’s been swimming naked.”

* The writer is a director of the Ashridge Strategic Management Centre at Hult International Business School and is currently researching why companies and CEOs stumble. Jo.whitehead@ashridge.hult.edu

Editor’s note: This is a guest post.