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Businesses Don’t Fail; Leaders Do

Why do businesses fail? If you're willing to strip away all the excuses, explanations, rationalizations, and justifications for business failures, and be really honest in your analysis, you'll find only one plausible reason -- poor leadership. Mike Myatt suggests a variety of common reasons exist for business failure, which he characterizes as a leadership failure, including the following that deal with the internal corporate environment: (1) lack of character in the leader; (2) lack of vision by the CEO who should clearly define and communicate the corporate vision; (3) poor branding whereby leaders fail to exercise stewardship over the brand; (4) Lack of execution by failing to deploy the necessary talent and resources to ensure that the largest risks are adequately managed and biggest opportunities explored; (5) lack of capital causing capital constraints and closing off opportunities; (6) toxic culture that stifles productivity and can create ethical conflicts; and (7) inability to attract and retain talent that is necessary to achieve business objectives.

All of these factors rely on strong leadership to establish a pathway to success. A leadership failure is the cause of a business failure because without these seven internal controls, the business will be without direction and a toxic culture may prevent achieving one’s goals.

Marianne Jennings writes about the seven signs of ethical collapse. Ethical dilemmas that remain unresolved suffers from a lack of leadership and can destroy the “ethical” culture of an organization. Here are Jennings’ seven signs: (1) pressure to maintain numbers; (2) fear and silence; (3) loyalty to the boss; (4) weak board of directors; (5) conflicts of interest overlooked or unaddressed; (6) innovation like no other company; and (7) goodness in some areas atones for evil in others. According to Jennings, “When an organization collapses ethically, it means that those in the organization have drifted into rationalizations and legalisms, and all for the purpose of getting the results they want and need at almost any cost.”

Good leadership means to lead from the front, not the behind. It is to engage employees as followers to buy into the vision set by the leader. It occurs through a commitment to core values of integrity, responsibility, and accountability. Bad leadership occurs when employees are fighting against the prevailing winds and pushing up a hill to achieve set goals.

I have written before about the importance of ethical leadership. Ethical leaders strive to honor and respect others in the organization and seek to empower others to achieve success by focusing on right action. An ethical organization is a community of people working together in an environment of mutual respect, where they grow personally, feel fulfilled, contribute to a common good, and share in the internal rewards, such as the achievement of a level of excellence common to a practice as well as the rewards of a job well done. By emphasizing community and internal rewards, ethical leaders commit to following a virtue-oriented approach to decision making based on a foundation of values-based leadership.

Gordon Tredgold, CEO and Founder of Leadership Principles, suggests that bad leadership destroys engagement, raises stress levels, reduces morale and ultimately it leads to failures that can kill businesses. But in reality, 95 percent of the time the issues can be traced back to one of three things: bad leadership, an absence of leadership, or too much leadership.

Things rarely fail because of technology or natural complexity. Instead, they fail because the teams are not engaged, inspired or empowered. Teams need clear guidance, clear plans and the support of their leaders. In Tredgold’s experience, if teams get those three things invariably they will be successful. But unfortunately, that's not as common as it should be. He concludes that leadership is all about taking care of the people, putting them in a position where they can be successful and then applauding as they achieve the desired success.

I’ll end this blog with a famous quote from legendary football coach, Vince Lombardi: “Leaders are made, they are not born. They are made by hard effort, which is the price which all of us must pay to achieve any goal that is worthwhile.” In short, developing a strong work ethic informed by ethical values is essential for effective leadership and to prevent or lessen the likelihood of business failure.

Blog posted on April 5, 2018 by Dr. Steven Mintz, Emeritus Professor from Cal Poly San Luis Obispo. He writes three blogs under the name “Ethics Sage”:;; and

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