How boards get into big trouble.

Position::CRISIS MANAGEMENT - Interview

Ed. Note: Whenever I see a company plunge into a crisis of some dire nature, I always think back to the interview I did with Victor Palmieri 30 years ago. He laid it out clearly and concisely how boards get mired in crisis, and it is an enduring pattern. Palmieri, then one of the top turnaround managers in the country, had seen his share of corporate ugliness since forming his crisis management firm. The Palmieri Co., in 1969. The interview was published in the 10th anniversary issue of Directors & Boards in 1986. An excerpt follows.--J.K.

How do major problems sneak up on boards?

Palmieri: Well, they sneak up on boards over long periods of time with what, in retrospect, always seems like ample warning signals. They sneak up under conditions in which, as the situation becomes worse, the board becomes less sensitive to the signs of crisis and more than ever sees itself as owing its loyalties to the chief executive rather than to the company and the stockholder. It becomes what is a fairly typical kind of sociology in crisis: the board tries to draw the wagons around, rejects any suggestion that there's something wrong in favor of some conspiracy theory and joins hands while the boat goes over the falls. That is a fairly consistent pattern and it has been observed by sociologists and students of human behavior. This situation holds not only in corporate boards but in government also--a certain defensive attitude enters in the moment that criticism starts rising.

What do you attribute this to?

Palmieri: It's a culture. What you find in the great corporate disasters with remarkable consistency is the same kind of culture--in which dissent is suppressed, in which loyalty is measured by agreement rather than disagreement, and where, as you approach the top of the management structure, you find the people have been selected by virtue of their willingness to go along rather than to speak their mind. Where that situation exists there's often a progressive loss in what I call the collective grasp of reality In that type of...

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