Business Strategy

Why do Organisations Fail? Making sense of catastrophic corporate collapse!

  • May 18, 2021

It is now thirty years since the Cadbury Committee was set up to examine why companies fail. Its report initiated a series of corporate governance reforms over the following decades, yet still the corporate catastrophes keep happening.

There is something morbidly fascinating about company failures. In the aftermath, observing the media analysis, the government hearings and the public outrage can feel like watching a train crash in slow motion . So often, the companies that failed and the people who led them were held up as examples of good practice a few years, or even a few months, before their organisations collapsed. Enron’s finance chief received a CFO excellence award in 1999 only to be indicted by a federal grand jury three years later. Carillion won awards for ethical business and its chief executive was the prime minister’s advisor on corporate governance less than two years before it crashed. The Post Office’s former boss was awarded a CBE for her work, even as she presided over what we now know to be a shocking example of corporate mismanagement. The resulting compensation claims will probably leave her organisation needing a government bailout.

It is this aspect of corporate failure which gives it the sense of drama. The fine line between triumph and disaster and the sudden fall of the mighty. Companies and their leaders go from hero to zero overnight. As you watch the story unfold, you feel the need to rewind so you can spot the moment when things started to go wrong.

As ever, though, the reality is more complex. Organisations don’t fail overnight. Like a dam bursting, they fail gradually, then suddenly. Research into major accidents shows that they seldom arise from a single cause. They are more often the result of a series of errors coming into alignment. The same is true of organisational failure. What looks like a sudden disaster is usually the result of problems building up over years.

As investment analyst Tim Steer points out, in every corporate failure there were clues that should have been clear in advance. In his book, The Signs Were There, he shows how companies’ executives attempt to hide or disguise inconvenient facts and that, for whatever reason, banks, auditors and investors stay silent. When the full picture is revealed it is usually too late but, if you know where to look, you can often see the disaster looming.

Tim will be one of the excellent guest speakers at PARC’s Conference on 2 June, which will take an in-depth look at the phenomenon of corporate failure. The event will also feature behavioural economist, David Tuckett, project management expert, Stephen Carver, and senior employment lawyer, Diane Gilhooley, each giving their own perspective on why organisations fail. The discussion will be chaired by Margaret Heffernan, business owner, broadcaster and author of Wilful Blindness. Our aim is to integrate these themes and to explore the systemic nature of business failure. We will join the dots to show how the various aspects of organisational failure compound each other and eventually align to produce a catastrophic business collapse.

It is essential for HR professionals to understand how organisations fail and how to identify the warning signs in their own organisations and in those with which they do business. This event will provide the insights and framework to enable you to do that. It is also, as we said earlier, a fascinating and intriguing subject!

For more information view the event flyer and to register visit the event page.

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