On the subject of investing checklists as an aid to better decision-making, we also noted some interesting research done a while back (post the Tech bubble) by Sydney Finkelstein. Finkelstein is the Professor of Management at Dartmouth’s Tuck School of Business. Rather than focus - as most researchers do - on the reasons behind management success, he chose to look at corporate failures. In what he calls the largest research program ever devoted to corporate mistakes, he spent six years studying more than 50 companies – including Enron, Tyco, WorldCom, Rubbermaid and Schwinn - and conducting some 200 interviews to ascertain what they did to become complete failures.
If you share Charlie Munger's view that a key part of good investing is learning to make fewer mistakes than the next guy, this is pretty interesting from an "alarm bell" perspective - "I don’t want you to think we have any way of learning or behaving so you won’t make mistakes. I’m just saying that you can learn to make fewer mistakes than other people – and how to fix mistakes faster when you do make them" (Munger).
So what were the conclusions of Finkelstein's work?
When do Businesses Fail?
Firstly, Finkelstein's work found that most businesses failed during four major business events, namely: i) new ventures, ii) dealing with innovation and change, iii) managing mergers and acquisitions, and iv) addressing new competitive pressures. This is perhaps unsurprising as these are all times of major corporate change, which might put stress on an organisation. Secondly, he found that failures are caused by four destructive patterns of behaviour that typically set in, well before a business goes under. These four syndromes involve:
- Flawed executive mind-sets that throw off a company’s perception of reality
- Delusional attitudes that keep this inaccurate reality in place
- Breakdowns in communications systems developed to handle potentially urgent information
- Leadership qualities that keep a company’s executives from correcting their course
Thirdly, he found that spectacularly unsuccessful people had seven personal qualities in common.
7 Habits of Spectacularly Unsuccessful Executives
Nearly all of the leaders who preside over major business failures exhibit four or five of the following habits. The truly "gifted" ones exhibit all seven. They are usually found in conjunction with admirable qualities, such as unusual intelligence, talent, charming, personal magnetism, and the ability to inspire others. So what are they?
