The Ultimate Reason Why Good Companies Turn Bad and What To Do About It

The Ultimate Reason Why Good Companies Turn Bad and What To Do About It

There’s a reason you stumbled upon this article and it’s not because you’re just scrolling for a new business technology you can utilize. Your company/business is having an issue right now, which isn’t there when you started.

Let’s see how this so-called corporate destruction cycle happens:

  • It begins with the company getting on a fast-paced growth curve either because of a good economy or an excited staff, which the managers attribute to great managerial skill.
  • After this, managers begin to become arrogant of their supposed achievements and think that they can do nothing wrong. That’s where the problem starts.
  • In this moment, the managers start making bad capital allocating decisions, even expand wildly or take on unprofitable projects that are compromising profits.
  • These wrong capital allocation decisions lead to bad to no return on capital that eventually leads to the company’s financial stress.
  • What happens next is that the managers will try to deny that they aren’t the ones to be blamed for what happened or that there was an issue with their decisions. Sadly, they try to get out of trouble the same way they caused it in the first place. This phase is commonly littered with phrases like balance sheet restructuring or business restructuring.

You can see where most of this is boiling down – bad leadership.

Research and real-time data will tell you that bad leadership wrecks companies. You may even say to yourself that failure is part of a company or businesses’ natural cycle. Companies are born, they die, capitalism moves forward. It’s what people call creative destruction.

Outside support is available to help your company stay afloat and rise again

The good news here is that you are not alone in your struggle.

Many companies are starting to realise that outside help can turn the tide of a bad leadership and management of their company. Corporate Governance programmes from ICLIF, for instance, aims to enhance your directors’ skills so that they are better armed to fulfil their duties and carry out their roles and accountabilities. These types of programmes have different focuses: risk management, strategy, succession planning, talent management, financial reporting or stakeholder management.

It’s obvious that poor leadership is a serious issue that poison to a company or business. However, take note that it’s also crucial for everyone in a company to be invested. Many of the disasters your company could face can be prevented if the leaders weren’t blindly relied on and given all the keys to do whatever they want. In any case, it’s a two-way street with leaders and subordinates both being held responsible.

Figuring out and manoeuvring leadership should start with a business plan when a business is just starting to stretch its limbs. Failure to plan and not having a standard operating procedure in place can be triggers for poor leadership, but it’s just so easy to not focus on these steps in the early stages.

Business owners too often think they can simply get around to these kinds of details later on, but later never actually come with all the things that happen why the business is “thriving”. Perhaps if more startups focused on streamlining management and looking to strengthen corporate governance practices, foundations would be stronger.