Autocratic ruleSooner or later, autocratic chief executives encounter a series of events which they do not understand, and about which they will not accept guidance. Failure will often follow.
An autocratic managing director may impede effective decision-making in areas where he or she lacks strength or experience.
Often, having brought a company from a start-up situation, the same person may also have difficulty making the transition to the next stage of growth.
A non-participating boardAutocratic leaders can only cause damage if they are allowed to do so by a non-participating board.
Non-executive directors must insist upon exercising their powers and fulfilling their responsibilities. They must also demand and receive regular, detailed, reliable and timely information.
Lack of leadershipOn the other side of the coin, some businesses fail because they lack an effective chief executive to provide overall control and direction.
With weak leadership, middle managers may fail to focus on the company’s core business. The potential for conflict within the company also increases.
An unbalanced top teamMany failing companies lack management depth, especially in the area of finance.
An insufficient range of management skills, coupled with a reluctance to consult outside advisers, is a recipe for disaster.
A weak finance functionOften the finance and accounting function is intentionally under-resourced.
Senior managers are starved of accurate, relevant financial information. Budgets, cash flow forecasts, costing systems and other internal control systems may also be inadequate.
Inadequate industry knowledgeMany failed companies have had senior executive managers who possessed inadequate strategic understanding of the industry and the specific business environment.
NepotismFamily members may retain management responsibility, regardless of their suitability.
This not only gives rise to bad management practices, but it may also reduce the company’s ability to attract and retain experienced ‘non-family’ managers if they are unable to aspire to senior positions.
Uncontrolled growthRapid business growth without a proportionate growth in management resources may lead to a rapid loss of control.
ReportingAn ill-defined reporting structure and definition of responsibilities can lead a lack of corporate focus and may culminate in managerial conflict.
Companies often fail when excessive management and other resources are devoted to non-core activities or to loss-making activities.
“This information is an edited extract from the book ‘Corporate Collapse – an early warning system for lenders, investors and suppliers’ written by Andrew McRobert and Ronnie Hoffman and published in Australia by McGraw –Hill”.