Every day, CEOs in companies carry the burden of company stewardship, which is often more important than quarterly targets or market positioning. Their decisions set the tone for resilience or downfall, and history has shown that even the most dominant companies can unravel because of avoidable leadership errors.
The fact is that while markets reward boldness, they also punish blindness, arrogance, and poor planning. In this article, let us examine three mistakes that have often been responsible for the eventual failure of many companies. Let’s begin.
#1. Failing to Control Risk and Scandals
It feels like there’s always some scandal going on that costs a company a huge amount of money and reputation. Look at the Sterigenics lawsuit situation that is causing Sotera Health a lot of drama.
If you haven’t seen the news already, Sterigenics is a company that ensures medical devices are sterilized. With a focus on health, you would think that they’d know better than to use chemicals like ethylene oxide (EtO) with its long-term consequences.
Yet, as TorHoerman Law notes, the company was aware of the health risks that came with using EtO, but continued using it anyway. Now, lawsuits have been filed, and a court in Atlanta, GA, will be hearing a case of an individual affected by the chemical exposure.
How are these oversights missed by the CEO? Leaders seem to forget that when you fail to prevent or handle situations like these, it affects not just your company but the entire industry. Studies in China on the effects of corporate environmental and social scandals found something interesting in this regard.
On average, rivals lose 0.43% in shareholder wealth within a five-day window around scandal announcements. To make matters even more absurd, losses by competitors tended to exceed the market value by 150% when compared to the original firm with the scandal.
That might sound nice for some CEOs, but in many industries, it’s in your best interest to have good relations with other companies in your field. Thus, remember that as a modern executive, you cannot afford to rely on reactive press releases or crisis committees assembled after the fact. You have to control risk and scandals from day one.
#2. Over-leveraging and Ignoring Structural Warning Signs
Periods of record growth often disguise the cracks beneath. The collapse of Lehman Brothers is the clearest illustration of how success can breed recklessness. From 2005 to 2007, the firm reported record earnings, securitizing $146 billion in mortgages in 2006 alone. Yet by early 2007, cracks in the housing market were obvious.
Lehman held an $85 billion portfolio of mortgage-backed securities, four times its shareholder equity, and still insisted risk was contained. Their leverage ratio eventually peaked at 31 to 1, leaving the firm exposed to even the smallest market shock.
This was not an accident. It was the result of leadership choosing optimism over reality. Executives wanted to believe that housing prices would not collapse, and they told themselves the risks could be managed because they always had been in the past. This is a common executive trap: assuming momentum itself will protect the business.
It’s a similar story with general business debt, which is something that a lot more businesses are exposed to. Of course, debt in business is not always a bad thing. As Harj Taggar, a managing partner for Y Combinator, explains, good business debt is tied to something with a clear plan.
This plan should justify why the debt is helpful. If you’re taking on debt based on growth assumptions that fail to materialize, you’re going to be in a bad place, he warns.
Essentially, your growth strategies should be built around sober assessments rather than inflated confidence. Yes, leverage can amplify company success, but it also magnifies every weakness. In other words, what looks like smart aggression in an upmarket could quickly turn into a death sentence when the tide shifts.
#3. Poor Succession Planning
Even the strongest companies falter when leadership transitions are handled poorly. This is because investors pay close attention to executive turnover, and their reaction is rarely patient.
One study found that when a high-performing CEO resigns, markets react negatively, largely due to uncertainty about the successor’s ability to sustain performance. However, when these firms disclosed succession plans in proxy statements prior to turnover announcements, the stock declines were far less severe.
Thus, transparency is often critical to reassure investors that continuity is being taken seriously. Sadly, this is where many executives fail. They treat succession planning as a future issue rather than an active part of governance.
Similarly, if you wish to project stability, your goal is not simply naming a successor but outlining a pipeline of leadership development and communicating readiness to stakeholders. A business that has no visible plan for succession tells the market it has no plan for its future. In a competitive environment, that kind of signal is enough to erode confidence rapidly.
Frequently Asked Questions
- What’s the #1 reason CEOs are fired?
The top reason is poor performance. When profits drop or growth stalls, boards lose patience quickly. Personality clashes or scandals can play a role, but missing financial targets is what usually gets a CEO shown the door faster than anything else.
- Can a CEO ruin a company?
Absolutely. A CEO’s decisions set the direction for everything from strategy to culture. Bad calls on risk, ignoring red flags, or mishandling crises can sink even healthy businesses. History is full of companies that crumbled because the person at the top lost perspective.
- What is an overleveraged business?
An overleveraged business is one drowning in borrowed money. Debt might boost growth in good times, but too much means even small setbacks become dangerous. When revenue dips, interest payments eat cash, flexibility disappears, and the company suddenly feels like it’s balancing on thin ice.
Ultimately, executives often talk about innovation, disruption, and bold vision, but companies usually fall apart for much simpler reasons. These include ignoring risk, overextending themselves, or leaving the future of leadership to chance.
Thankfully, none of these require brilliance to fix, only discipline. It’s safe to say that the leaders who last are not the ones who build guardrails before anyone else sees the danger coming.
