To be spectacularly unsuccessful requires some very special personal qualities. We're talking about people whose failures were breathtakingly gigantic, who have taken huge, world-renowned business operations and made them almost worthless. They have caused thousands of people to lose their jobs and thousands of investors to lose their investments. They've managed to destroy hundreds of millions or even billions of dollars of value. Their destructive effect is so beyond the range of ordinary human beings that it's on a scale normally associated only with earthquakes and hurricanes.

The personal qualities that make this awesome scale of destruction possible are all the more fascinating because they are regularly found in conjunction with truly admirable qualities. After all, hardly anyone gets a chance to destroy so much value without also demonstrating a potential to create it. Most of the great destroyers of value are people of unusual intelligence and remarkable talent. They are almost always capable of being irresistibly charming, exercising great personal magnetism, and inspiring others. Their faces have typically appeared on the covers of Forbes, Fortune, Business Week, and other business publications.

Yet when it comes to the crunch, these people fail monumentally. The list of leaders who have failed spectacularly is not a list of people who weren't up for the job. It's a list of people who had a special gift for taking what could have been a modest failure and turning it into a gigantic one.

How do they do it? What's the secret of their destructiveness? Remarkably enough, it's possible to identify seven habits that characterize spectacularly unsuccessful people. Nearly all of the leaders who preside over major business failures exhibit five or six of these habits. Many of them exhibit all seven. Even more remarkable, each of these habits represents a quality that is widely admired in today's business world. As a society, we don't just tolerate the qualities that make leaders spectacularly unsuccessful; we encourage them.

Let's look, then, at The Seven Habits of Spectacularly Unsuccessful People. Although these habits are most destructive when it's the CEO who exhibits them, other managers with these habits can do terrible harm as well. Learning to recognize these habits is the first step toward finding ways to compensate for them.

Habit #1: They see themselves and their companies as dominating their environments.

"Wait a minute," you might say. "Where's the harm in that? Don't we want leaders who are ambitious and proactive? Shouldn't a CEO seize the initiative and create business opportunities, not just react to developments in his or her industry? Shouldn't the company try to dominate its business environment, shaping the future of its markets as well as setting the pace within them?"

The answer to all these questions is, of course, "yes." But there's a catch. Successful leaders are proactive because they know they don't dominate their environment. They know that no matter how successful they have been in the past, they are always at the mercy of changing circumstances. They need to generate a constant stream of new initiatives because they can't make things happen at will. To be successful for more than a fleeting moment, every business venture needs to be one that customers and suppliers interact with voluntarily. This means that no matter how successful the company, its overall business plan will need to be continually re-adjusted and renegotiated.

Leaders who see themselves and their companies as dominating their environments forget these things. They vastly overestimate the extent to which they are controlling events and vastly underestimate the role of chance and circumstance in their success. They think they can dictate terms to those around them. They think they're successful and that their company is successful because they made it happen.

There are some deep psychological reasons why many leaders begin thinking this way, the most important of which is the human need to feel responsible for what happens to us. We need to feel we can influence our fate when things are going wrong, and that we deserve our success when things go right. Yet CEOs are constantly faced with threats that are in some respects beyond their control, and they are successful in some respects beyond what they deserve. Under these circumstances, many business leaders need to believe they are dominating their environments in order to cope with the stresses of their jobs.

The Illusion of Personal Preeminence

Many CEOs believe that he or she is personally able to control the things that will determine the company's success or failure, a tendency labeled the Illusion of Personal Preeminence. Rather than scrambling to keep track of changing conditions, the CEOs who succumb to this illusion believe they can create the conditions under which they and their company will operate. What's more, they believe they can do it by their own personal genius and force of personality. Like certain film directors, they see themselves as the auteurs of their companies and sometimes even as the auteurs of their industry. They imagine that their job is to realize their creative vision, imposing their will on unruly collaborators and inert raw materials. As far as they're concerned, everyone else in the company is there to carry out their personal conception of what the company should be.

When CEOs actually do possess a measure of genius, they are especially prone to slide into this illusion of personal preeminence. An Wang, for example, knew he was a technical genius. This led him to believe he could master business situations by employing the same intelligence and diligence that had allowed him to master technical problems. Mossimo Giannulli had a touch of genius when it came to expressing popular trends in clothing designs. This led him to believe that he was also a business genius, one who had little need for qualified and experienced managers. In the opinion of Merrill Lynch analyst Brenda Gall, Mossimo "bought into his own image too much" and believed that he could do anything. It wasn't until his rapid growth plan fell victim to cost overruns, late shipments to major customers, and inadequate systems - stripping his company's stock price by 90% - that he finally stepped down.

Executives with a degree of business genius are just as susceptible to this illusion as those with a more technical kind of genius. Samsung CEO Kun-Hee Lee was so extraordinarily successful with semiconductors and electronics that he thought he could repeat this success with automobiles. Webvan CEO George Shaheen had been so successful in his earlier job as CEO of Andersen Consulting that he was completely oblivious to the fact that he wasn't communicating effectively with his managers in Webvan. "He operated 20,000 feet above everyone else," explained a former Webvan executive. "I liked him," commented another Webvan manager, "but he was the wrong man, particularly for a public company."

Behavior That's a Little Too Preeminent

Leaders who suffer from the illusion of personal preeminence often reveal this in the way they treat the people around them. To these leaders, the people they interact with are instruments to be used, materials to be molded, or audiences for the leader's performances. When business leaders think this way, they often use intimidating or excessive behavior to dominate the people who surround them. In most cases, it's not unconscious or unintentional. They want to be "larger than life," "legendary," "awe-inspiring." The subtlest practitioners of this intimidating personal style are those who achieve it while speaking softly and making small gestures. They revel in the contrast between the little things they do and the huge effects they can get by doing them. But there is no shortage of leaders who prefer the other alternative - speaking loudly and carrying a big stick. Whichever style they chose, leaders who believe in their personal preeminence can achieve a remarkable level of intimidation.

As co-founder and CEO, Bob Levine of Cabletron was famous for his flamboyant, confrontational style. He was also famous for his bodybuilding regimen, right-wing politics, and survivalist mentality. He purchased an abandoned grocery store near the company's offices so he could lift weights during his lunch hour. His lighter side is illustrated by the fact that he bought a working army tank to keep in his yard. Legend has it he once used it to scare a pizza deliveryman. As a salesman, he was known for aggressive motivational stunts. At one Cabletron sales meeting, he arrived brandishing a knife to teach employees about killing the competition. At another, he appeared dressed in combat fatigues and swinging a machete.

Few CEOs could match Bob Levine when it came to colorful antics, but many CEOs whose companies suffered major breakdowns could match him when it came to sheer intimidation. Roger Smith of GM had such a ferocious disposition that the EDS executives who witnessed one of his outbursts say he turned red, shouted, pounded on the table, and literally foamed at the mouth. Jerry Sanders of Advanced Micro Devices (AMD) intimidated those around him by his temper to such an extent that they were afraid to tell him any news they thought might upset him. Enron leaders Jeffrey Skilling and Andrew Fastow were known for their toughness and arrogance. Sir Richard Greenbury was feared for years by his underlings at Marks & Spencer. Rubbermaid's Wolfgang Schmitt could be "a very engaging and personable guy," but he adopted a personal style at work that was described as "very blunt and intimating in dealing with people." Inside the company Schmitt "was known as the 'U-boat Commander' because he had a very tough, take no prisoners style about him." These aren't people who occasionally get angry; they are people who have made displays of anger and other intimidating behavior part of their basic management style.

The Illusion of Corporate Preeminence

Executives who succumb to an illusion of personal preeminence often succumb to an illusion of corporate preeminence too. This is a belief on the part of the CEO that his or her company is absolutely central to suppliers and customers alike. Rather than looking to satisfy customer needs, the CEOs who believe they run "preeminent companies" often act as though their customers are the lucky ones, fortunate to be able to have their needs satisfied so effectively. It's almost as if the entire customer relationship is turned on its head so that it is the customers' job to please the company by showing themselves worthy of the company's products.

Leaders who suffer from an illusion of corporate preeminence often believe that the superiority of their company's product makes it invulnerable. An Wang, for example, believed that Wang would eventually dominate its markets because its products were simply so much better than any others. Bob Levine believed that rivals like Cisco were producing such inferior products he had little need to take them seriously. If the customers didn't immediately see this, he thought it was the job of Cabletron's sales force to make them see it. CEOs like these become so proud of their company's product, they believe its sheer excellence will give them the latitude to do anything they please. After all, they tell themselves, if you make the best product in the world, customers must either come to you or settle for something inferior.

Even when competitors who offer better designs or better prices challenge the company's products, executives who suffer from an illusion of corporate preeminence will continue to believe that their company is secure simply because of its status in the business world. Kun-Hee Lee, for example, believed that Samsung's corporate preeminence more-or-less guaranteed its success. "We, at Samsung, used to believe that we could do better than anyone else," one of Samsung's managers later confessed. "Samsung believed that it could not fail." Wolfgang Schmitt of Rubbermaid has said, "Our success had it's own form of seductiveness. It made us pretty self satisfied and not inclined to ask the tough questions." At Schwinn, managers boasted, "We don't have competition. We're Schwinn."

Habit #2: They identify so completely with the company that there is no clear boundary between their personal interests and their corporation's interests.

Like the first habit, this one can readily seem innocuous or beneficial. After all, don't we want our business leaders to be completely committed to their company? To see the company's best interests and their own best interests as one and the same? To be as careful with company money as they would be with their own?

Yet, in case after case, a deeper examination of the factors contributing to major business failures suggests that the failed executives were not identifying too little with the company, but too much.

What is going on here? In Chapter Two, we already pointed out some of the problems that arise when the primary shareholder is also the primary manager: that giving an executive too large a stake in the company also gives the executive too much power. If the CEO controls too large a block of stock, there will be no one in a position to take corrective action if the CEO chooses a dangerous or destructive course.

Here we are concerned with something quite different. Identifying too much with the company encourages CEOs to make unwise decisions. Instead of treating the company as something they need to care for, nurture, and protect, CEOs who identify too much with their company treat the company as an extension of themselves. They cause the company to do things that would make sense for a person, but do not make sense for a company.

This is a habit that can be remarkably easy to slip into. CEOs are especially prone to identify too much with a company if they believe they are personally responsible for the company's success. This means that leaders who succumb to the illusion of personal preeminence are also likely to fall into this related trap. If the CEOs are company founders or have taken a small company and helped turn it into a very big one, they are in particular danger of confusing their company's achievements with their own. In extreme cases, the CEO will actually believe he or she IS the company. Mossimo Giannulli liked to say, "I am Mossimo." Kun-Hee Lee was rumored to be quite pleased to be referred to as "Mr. Samsung." For many years, in his own mind and in the minds of his employees, An Wang was Wang.

When CEOs and their employees are unable to separate the CEO from the organization, they're well on their way to a "private empire" mentality. The CEOs begin to behave as though they own their companies, when they don't, and they begin to act as though they have the right to do anything they want with them, which isn't true.

CEOs who succumb to this mentality often use the corporation to carry out personal ambitions when these are not a good way to generate profits. Samsung CEO Kun-Hee Lee decided to enter the automobile industry mostly because he liked cars. The Saatchi brothers pushed their company to become bigger and bigger, regardless of whether or not this resulted in more profits, because of their own aggressively expansive egos.

Once they've launched a project, leaders like these often invest in it with no sense of proportion or restraint because they feel that betting on the project is betting on themselves. Roger Smith's plan to make GM factories as worker-free as possible became so much a part of his own identity that he was incapable of stepping back and evaluating it critically. A succession of Motorola CEOs made Iridium so much a symbol of their imaginations and boldness in envisioning the future that it became difficult for them to stop and re-evaluate the venture when circumstances changed. Mossimo Giannulli couldn't get any critical distance whatsoever from the company he had named for himself, so its activities all became an expression of his own megalomaniac ego. In cases like these, the CEO becomes unable to acknowledge that the pet project has become a losing proposition, because to do so would seem like a declaration of personal inadequacy.

Legendary automotive executive John DeLorean provides a stunning demonstration of how thoroughly identification with a company can ruin its chances of success when he tried to launch a new car company. At first, the prospects for his venture seemed excellent. But as soon as DeLorean decided to name the car he would manufacture after himself, the whole enterprise took on a different tone. He changed the design of the company's first model from a vehicle for the middle classes to the "super-car," later featured in the Back to the Future movies. He also greatly increased the amount he was spending to build his Northern Ireland automobile factory. Essentially, his ego demanded that everything associated with his own name be first class. This made the environment he created for his workers into a model for factories everywhere. But it also made him almost psychologically incapable of controlling costs. Later, when it became increasingly obvious that DeLorean's automobile company was in serious trouble, DeLorean couldn't bear to recognize it because it would have seemed as though he was betraying himself.

Decisions Express the Executive's Personality

When CEOs identify too much with the company, they tend to make business choices to suit themselves, not the company. Cabletron neglected marketing largely because co-founder Craig Benson (who is now Governor of New Hampshire) never liked marketing. Stephen Wiggins, CEO of Oxford Health Plans, saw himself as too much of a computer expert to be running a company that would settle for mass-market software. Said Michael Kornett, Oxford's President in 1992 and 1993, "He's computer-literate and a systems jockey. His mindset was 'We aren't a vanilla company and we can't buy a vanilla managed-care processing system.'" This fixation on avoiding vanilla ended up costing Wiggins his job, and the company almost its life.

Executives who adopt this general frame of mind regularly confuse their personal adversaries with the company's adversaries. An Wang, for example, hated IBM because he felt they had cheated him early in his career, so for a long time, he refused to cooperate with them, even indirectly. This is one of the reasons he delayed entering the PC market and ultimately did it with proprietary software. Jerry Sanders of AMD hated Intel and attacked them for years, sometimes to the obvious detriment of AMD. Stephen Wiggins of Oxford Health Plans hated the government so much that he often seemed more eager to score points in his ongoing battles with government agencies than to accept the compromises that would have allowed his company to get on with business. The racist attitudes that permeated the Boston Red Sox in the age of integration is a particularly heinous example of how personal hatreds can get translated into corporate hatreds, and the price you pay for crossing that line.

Perhaps the most surprising thing that happens when CEOs identify too much with their company is that they become less careful with the company's assets. They take big risks with other people's money, not because it's other people's money, but because they are treating it as their own money and they happen to be big risk-takers. Very often, it's making big bets and managing to collect on them that got the CEOs into their top jobs in the first place. Once in charge, these CEOs aren't likely to abandon the risk-taking style that made them rise above their peers. Bankers Trust CEO Charles Sanford, Jr., is a perfect example. Not only did he have a risk-taking attitude himself; he encouraged it among employees by basing their pay entirely on their recent performance. In the mid-1990s, his high-flying recruits were paid to trade aggressively, innovate aggressively, and sell aggressively. They weren't paid to safeguard company assets. So they didn't. The push to sell derivatives led to lawsuits, lost business, and Charlie Sanford's job.

Unfortunately, this sort of attitude toward company money is more the rule than the exception. Even Peter Guber and Jon Peters, despite their violation of other codes, were mostly guilty of treating Sony Pictures as an extension of their own personalities. If they were extravagant and reckless with Sony's resources, it was mostly because they were extravagant and reckless with their own resources.

The Darkest Side of Identifying with the Company

When leaders identify with their companies too much, they become increasingly likely to use corporate funds for personal reasons. At the time, most CEOs aren't aiming to do anything illegal. In nearly every case, they get stuck on a slippery slope. Executives get used to traveling in a cocoon of constant luxury and having their every expenditure on the road treated as a business expense. They work such long hours that they feel they've given up their private lives for the company. So eventually they come to believe that everything they do is "for the company" and should be paid for by the company.

CEOs find it especially easy to rationalize the use of corporate funds for private purposes when these purposes are philanthropic and involve causes the corporation would generally support. In June 2000, for example, Fruit of the Loom began investigating former CEO William Farley for directing the company to make charitable donations dating back to 1994 to "satisfy his or his family's personal obligations under pledge agreements." The non-profit organizations in question ranged from educational institutions like Boston College, to hospitals such as New York Presbyterian. All of these contributions would have seemed beneficial to the world and at least vaguely in the interests of Fruit of the Loom. Yet they involve questionable expenditures of corporate funds and equally questionable expenditures of the executive's time and attention.

Once executives are covering some of their personal expenditures with company money, it becomes increasingly difficult to keep the personal and the corporate separate. This accelerates the blurring of boundaries between personal identity and corporate identity. After John DeLorean named the new car his company was going to manufacture a "DeLorean," people started to call the company DeLorean, and employees said they worked for DeLorean. When listening to DeLorean's own speech, it was often hard to tell whether he was talking about the car, himself, or his company. Under the circumstances, is it any wonder that he tended to forget which checkbook was which?

If the executives have been on the job long or have overseen a period of rapid growth, they may come to feel that they've made so much money for the company that their expenditures on themselves and those dear to them, even if extravagant, are trivial by comparison. In fact, by their very extravagance, these executives often seem to be demonstrating to themselves how great the services were that they performed for their company. This twisted logic seems to have been one of the factors shaping the behavior of Dennis Kozlowski of Tyco. His pride in his company and his pride in his own extravagance were not in conflict, but seem, in fact, to have reinforced each other. This is why he could sound so innocent and sincere, making speeches about the need for ethical conduct in business, while simultaneously using corporate funds for personal purposes to an extent that is now becoming legendary. If Kozlowski seemed utterly shameless, it was because in his own mind, these things demonstrated his worth to his company and to society.

Being CEO of a sizeable corporation is probably the closest thing in today's world to being king of your own country. The Pressman brothers demonstrated how kings could live if their kingdom were Barneys. Gene Pressman lived in Bugsy Siegel's former 25,000 square foot home with accessories that included a collection of fine wines - estimated at 100,000 bottles - and a collection of antique cars. While Barneys slid into a financial crisis, Pressman's daughter Nancy spent $1.2 million remodeling her home, made a practice of removing money from the store's "money room" for personal use, and regularly helped herself to extravagant outfits from the store racks, which she gave to her boyfriends. In 1994 and 1995, as the company operated tens of millions in the red, the Pressmans took what a former executive estimates to be "at least $14 million to $15 million out of Barneys and possibly much more." Gene embarked on a million dollar renovation of his Westchester home. Then, right before declaring bankruptcy, Gene and Bob Pressman went on vacation and withdrew an additional $5 million from the company for supposed retroactive salary increases. From an ethical and business standpoint, this might sound self-destructively insane. But it is really just an extreme case of executives failing to distinguish between themselves and their company.

Habit #3: They think they have all the answers.

It's hard not to be impressed with business leaders who continually dazzle us with the speed with which they can zero in on what's really important. They always seem to have a deep acquaintance with the relevant facts. They can instantly make sense out of complex situations. Above all, they have a gift for sheer decisiveness.

Altogether, this is the image of executive competence that we've been taught to admire for decades. Movies, television shows, and journalists all offer us instantly recognizable vignettes of the dynamic executive making a dozen decisions a minute, snapping out orders that will redirect huge enterprises, dealing with numerous crises at once, and taking only seconds to size up situations that have obviously stumped everyone else for days. At the higher levels of business, there actually are many people who resemble this stereotype or seriously aspire to resemble it. Their personal styles may vary, but underlying all their conduct on the job is this ideal of an executive who has all the answers and who can articulate those answers as fast as his or her associates can ask the questions.

The problem with this picture of executive competence is that it is really a fraud. In a world where business conditions are constantly changing and innovations often seem to be the only constant, no one can "have all the answers" for long. Leaders who are invariably crisp and decisive tend to settle issues so quickly that they have no opportunity to grasp the ramifications. Worse, because these leaders need to feel they already have all the answers, they have no way to learn new answers. Their instinct, whenever something truly important is at stake, is to push for rapid closure, allowing no periods of uncertainty, even when uncertainty is appropriate.

People around the CEO sometimes encourage this sort of "decisive behavior" because they find it reassuring. They want to follow a leader who has all the answers. The fact that they are invariably following a leader who doesn't have all the answers - even though they know logically that this has to be the case - is very frightening.

Leaders who accept this ideal of executive competence tend to relish the sort of performance they are able to give, where they make snap decisions and issue orders at high speed. Rubbermaid CEO Wolfgang Schmitt was especially fond of demonstrating his ability to sort out difficult issues in a flash. A former colleague told us that around Rubbermaid "the joke went, 'Wolf knows everything about everything.'" This attitude of having all the answers permeated Schmitt's entire management style. "I remember sitting in one discussion," this colleague said, "where we were talking about a particularly complex acquisition we made in Europe and Wolf, without hearing different points of view just said, 'Well, this is what we are going to do.' He made it sound as if it was obvious to him and should have been obvious to the rest of us."

No industry seems immune from choosing CEOs who exhibit this executive style. Roger Smith of GM visibly reveled in being crisp and decisive, even when he had only a limited idea of what the implications of his decisions might be. George Shaheen of Webvan was at his best when demonstrating his ability to be quick and incisive. The only problem was that he had never stopped to figure out if his company's business plan was a workable one. Dennis Kozlowski of Tyco not only seemed to have an instant answer for every issue his company faced; he also seemed able to articulate the management principle that each decision illustrated. In company after company, the executive leading the way to disaster seems the living embodiment of what the media have taught us a decisive executive should look like.

All of these paragons of decision-making share another quality - they learn only what is a direct extension of what they already know. Wolfgang Schmitt is a good example. When describing him, John Mariotto, former president of Rubbermaid's office products unit, said: "Wolf's problem is he will not listen and really hear people telling him things he doesn't agree with, and he has few left who will dare to disagree with him anyway." Stanley Gault, the earlier Rubbermaid CEO, stated Schmitt's problem even more simply: "He refused to accept advice and suggestions."

One of the critical side effects of a CEO's fixation on being right is that opposition can go underground, effectively closing down dissent. Once this happens, the entire organization will grind to a halt, whether or not these CEOs were actually right or wrong in their judgments.

Interestingly, Schmitt saw himself as an agent of change at Rubbermaid, and was frustrated by people who "gave you lip service, and [others] who actively undermined the efforts." As he told us with evident irritation, others in the company said, "We've been extraordinarily successful. Why would we need to change? One of America's most admired companies, blah, blah, blah..." The difference in perception between Schmitt and his staff at Rubbermaid is striking, and characteristic of many of the executives described in this chapter. For Schmitt, the problem wasn't his approach. He knew the company needed to change, and he knew how it needed to change. Unfortunately, he was a leader without followers.

Control Freaks

Leaders who adopt the ideal of executive competence usually try to have the final say on everything their company does. If, like so many spectacularly unsuccessful leaders, they also feel personally responsible for the company's success and identify strongly with it, this will increase their desire for control. The more these leaders can control their companies, the less they feel threatened that their success depends on things outside their control. Thus, personal control for these leaders is both an extension of what they see as their executive role and protection against their own vulnerabilities.

It would be hard to find anyone who illustrates this compulsion to control everything better than An Wang. "Control was a big issue," one of his sales people emphasized. Employees knew that An Wang had to bestow his blessing on just about everything that happened within the company. And if an issue seemed important, Wang would intervene to make the decision himself, often in an ad hoc manner. "There was an autocratic management style from the top down."

In personality, Mossimo Giannulli seems at first glance to be as different from An Wang as anyone could be, yet in his compulsion to control everything, he is much the same. Besides designing and marketing the merchandise, he made every key decision himself, rather than delegating to other managers. "I don't think anyone is as capable of running this company as [I am]," he explained, admitting that some have called him a "control freak."

Ultimately, executives "with all the answers" trust no one. Only they can be relied upon to make the final call on any issue where the answer isn't obvious. This is how they put their personal imprint on every aspect of their company's operations.

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