Why Great Institutions Fail

Unemployed workers and other activists protest in front of the New York Stock Exchange, August 12, 2010.

Why have a surprisingly large number of great institutions, supposedly impervious to failure, from super banks and mammoth insurance companies to giant automakers recently failed? 

Are these spectacular failures cyclical and thus inevitable whether due to God or man?
Or are there more universal explanations? Do governments, irrespective of political basis or party affiliation, suffer from similar symptoms and causes of colossal failure? And how responsible are human nature and man’s basest instincts for fame, glory and greed in toppling even the best of institutions?
Expanding a long ago study done on “the Psychology of Military Incompetence” to today’s public and private sectors, my analysis of institutional failure has led to some provocative conclusions.
On top of well-understood reasons for failure, three overarching explanations emerged with amazing clarity, relevance and applicability across a wide swath of businesses and governments. The three principal explanations of failure can be categorized as strategic incompetence, arrogance and ideology.
Strategic incompetence, simply put, is what happens when people no matter how smart or experienced, end up not knowing what they are doing, creating destructive levels of bad judgment.
Arrogance exacerbates or accelerates this destructive process especially when the chief executive or leader is insulated from or refuses to entertain alternate views and even contradictory opinions.
Ideology is likewise a cause or symptom of strategic incompetence either by providing an irrefutable yet wrong rationale for action or justifying what a leader intends to do irrespective of fact, realty and logic.
Examples are legion. The most egregious is Congress where incompetence, arrogance and ideology run amok. But Chairmen and Chief Executive Officers Kenneth Lay of Enron, Rick Waggoner of GM and Presidents George W. Bush and Barack Obama represent four of many similar examples explaining why great institutions fail.
Ken Lay’s strategic incompetence rested in his vision to make Enron the largest company in the world — not merely the largest in the energy or trading sectors. His arrogance was fed by his routine selection as a top chief executive officer or the equivalent and a compliant board of directors picked as cheerleaders not overseers. A measure of papal infallibility, Enron style became embedded in corporate ideology. Illegal trading activities and business deceptions accelerated the demise and when Enron disintegrated, it did so almost overnight.
Rick Waggoner’s downfall rested in the false premise that GM’s prestige and reputation were sufficient for success. Build cars and Americans will buy them irrespective of quality, design or price. Facts didn’t matter. That three-quarters of all new car buyers for the next decade are currently 40 and under made not a dent on GM leadership. The company continued to design for the over 55 generation. Under the latest leadership it is unclear GM has learned its lessons — a cost to the public of $60 billion if the bailout isn’t repaid.
The sad tale of George W. Bush’s two wars is well known. Seven months into a foundering administration, September 11th became the epiphany that transformed Bush’s thinking.
Cajoled, convinced and possibly coerced by Vice President Dick Cheney and other neo-cons into believing Saddam Hussein and Baathist Iraq were the principal enemies, Bush embarked on the ideologically driven view that by imposing democracy in Iraq, the geostrategic landscape of the region would be transformed and become a great victory for the West. With the extraordinary success of first routing the Taliban from Afghanistan, arrogance took hold and the administration became convinced Iraq would be a cakewalk.
As a result, the Bush team expected a short war and short occupation with little need for planning to turn Saddam’s autocratic state into a functioning country under the rule of law. The Iraqi army was disbanded; de-Baathification pushed with maximum ferocity; and Iraq exploded. The pieces are still not put back together. Ideology fanned by arrogance led to strategic incompetence of unprecedented scope.
Obama’s handling of Afghanistan has followed a similar pathology. Pakistan as the main center of gravity was ignored in practice. Making Afghanistan Obama’s war as a means of attacking Bush’s follies in Iraq and presenting the candidate as the tough guy strong on defense was judgment at its worst. Unfortunately, the same flaws are obvious in many of Obama’s domestic programs and legislation overpowered by the destructive engines of strategic incompetence, arrogance and ideology.
In prior columns, the tragic disfiguration of American politics from seeking good governance to the more craven purpose of winning re-election was identified as one of the main factors in assuring failure. And for too long, strategic incompetence, arrogance and ideology have been dominant in our national DNA both inside and out of government.
An inoculation and cure don’t appear to be in sight. But in a future column, analysis of why some great institutions succeed might prove a good first step.
Harlan Ullman is chairman of the Killowen Group, which advises leaders of government and business, and senior adviser at Washington’s Atlantic Council.

Harlan Ullman is Senior Advisor at the Atlantic Council, Chairman of the Killowen Group that advises leaders of government and business, and a frequent advisor to NATO. This article was syndicated by UPI. Photo Credit: Getty Images.

Image: unemployed%20demonstration500.jpg