Trouble at the Top: The Impact of Leadership Instability

April 1, 2014 Vince Molinaro

Trouble at the Top: The Impact of Leadership Instability

February 10, 2014

By Vince Molinaro, Managing Director, Leadership Solutions, Knightsbridge Human Capital Solutions

Trouble at the Top

It is often said that the best organizations have the best and most stable leadership. However, leadership stability is a difficult commodity to measure.

To really assess the value of stable, effective leadership you need to take a long, hard look at an organization that is suffering from unstable and uncertain leadership, and the consequences that brings.

Angie’s List: A Cautionary Tale 
Consider the trials and tribulations of Angie’s List, an online membership service that connects consumers with professional services. Angie’s List produces recommendations based on thousands of consumer ratings of carpenters, electricians, auto mechanics and other service providers. Since it was founded nearly 20 years ago, it has proven to be a popular destination for browsers.

Recently, however, Angie’s List has run into a ton of trouble.

Now a publicly-traded company, the company’s share prices have nosedived – dropping by more than half in six months – and many market pundits have soured on its future prospects.

Subscribers are in revolt, in large part because the company refused to disclose that it earns significant revenue from sponsored advertisers. For a website that pledges to provide unbiased recommendations on professional services, allowing some service providers to buy their way to the top of Angie’s List rankings has not been well-regarded by the people who use the site. Some subscribers are so upset, they have launched a class-action lawsuit alleging the company made false and misleading statements to inflate share prices.

What is going on at Angie’s List?

Sudden Departures Provide a Clue
There is never any one reason why a formerly successful company would suddenly fall on hard times. However, several recent and unexpected departures of top executives give us some insight into Angie’s List troubles.

Last June, CFO Robert Millard stepped down. The respected Millard was the third CFO to depart Angie’s List since mid 2008.

Then in October, Chief Technology Officer Manu Thapar also left. Thapar’s departure sparked a lot of speculation not only because it was unexpected, but also because he was not lavished with praise in a news release announcing his decision to leave the company. In fact, the company refused to confirm if he had resigned or been terminated.

Were the departures just part of the normal ebb and flow of executive talent, or is there some other issue with leadership at Angie’s List? In the absence of fact, investors have made up their own minds and started abandoning Angie’s List in droves.

Perception Becomes Reality: Unstable Leadership Viewed as Sign of Dysfunction 
The Angie’s List story is a cautionary tale for any organization that suffers from ineffective or unstable leadership. Left unattended, leadership uncertainty can and will be viewed by investors and clients as a sign of dysfunction. And that can ultimately affect profitability.

In the case of Angie’s List, it is impossible to separate the issues of poor performance, questionable business decisions related to sponsored advertising, and executive instability. Investors in the end may debate whether the executives left because they made bad decisions, or were unable to stop others from making bad decisions, but the result is the same: the company has a bad reputation right now.

When top executives begin to flee a company, you can bet that the trouble has been brewing for some time. It is very rare for top executive talent to flee on a moment’s notice; these are problems that take months, if not years, to build up. The reason why investors and clients react negatively to the loss of executive talent is that it implies bigger problems, and an inability to problem solve.

In other words, if you wait until top executives begin to leave your company, then it’s already too late.

The Moral of the Story 
Organizations with a strong, effective leadership culture are rarely abandoned by their leaders. Top talent can be fluid, and there will be a natural turnover as good people move on to new challenges, and new leaders come on board. But when the flow of executive talent seems to be predominantly outward, that is a pretty clear sign there are bigger concerns.

The moral of the story is clear: The most successful organizations have a leadership culture that helps them retain and recruit the best executive talent. Those organizations that are constantly losing their leaders, often without any warning, are demonstrating the telltale signs of a leadership crisis.

And that, ultimately, is very bad for business.

About the Author

Vince Molinaro

Vince Molinaro is the Global Managing Director of Strategic Solutions at Lee Hecht Harrison. He is also the author of The Leadership Contract – a New York Times and USA Today bestseller. Vince has spent more than 20 years as an adviser to boards and senior executives looking to improve leadership in their organizations.

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