Financial Weakness is a Symptom. Look to People and Leadership for the Cause.

40 years in public company management, merchant banking and entrepreneurship in multiple industries has left an indelible imprint on me. In the two dozen businesses that I have been involved with as owner, investor, operator or contractor, my belief is that businesses that seek outside help tend to focus on fixes for weaknesses in growth or profitability. Whether it be failing or non-existent cash flow, troubled industries, poor strategic fits, etc. my belief is that the damage was done far before the negative symptoms occurred. Operating and financial weaknesses are the symptoms of the larger illness.

The root cause is always about two factors: people and leadership. A leader creates the culture for his company and that culture is palpable at every level of involvement including the C-suite, middle management, rank and file, customers and suppliers.

Leadership can inspire the enterprise to do great things, change industries and people’s lives. Think of Steve Jobs at Apple; he wasn’t universally loved or even admired, but he was the very definition of a leader. His passion for category-changing products, with unequalled aesthetics and best-in-class workmanship created a culture at Apple to be “insanely great”. On the other hand, a company such as Hewlett Packard had an unparalleled reputation for engineering excellence for decades. Three years after David Packard passed away in 1996, Carly Fiorina was appointed CEO of HP. She carried out the sale of the legacy technical equipment business, and shortly after her appointment she dramatically changed the HP Way (another name for culture) by a shift from nurturing employees to demanding financial performance, replacing profit sharing with bonuses, and a reduction in business units from dozens to 4. Finally, in 2001 she pushed through the acquisition of Compaq Computer over a proxy fight led by the Hewlett family. HP has been in decline for a decade because of poor leadership.

Leaders need to recognize that in order to succeed, they need to trust their people. The cohesion of management must extend beyond and below the C-Suite. When the team is working towards a common cause, great things can be accomplished. When leaders take for granted that management below the C-suite should be shielded from decisions that impact the lives and livelihood of all employees, bad things can spiral out of control. Lincoln created a team of rivals that led the Union through the Civil War. Company founders, boards and CEOs should be encouraged to hire the best and brightest and empower them from the top down to create a culture of accountability, creativity and innovation that will inspire all to be insanely great.