Michael Schaper

Who’s at fault when bad managers wreck a business?

Nuture or nature?

If you’re a small business that goes sour, the blame gets sheeted home to one place only: the entrepreneur. It’s their firm, their idea, and they started the venture. They usually run the business directly, and even if there’s a professional CEO, the owner’s imprint is obvious.

When good managerial judgement is lacking in an entrepreneurial firm, the impact is usually quickly known. The firm is small, and there’s little room to hide. 

But in a big firm it’s harder to see who’s responsible. There are more people, ownership is scattered, it’s easier to cover up mistakes and the costs of bad management aren’t always obvious to outsiders. Corporations can afford to shush up mistakes.

This is ironic, because the capacity to make bad mistakes can sometimes be greater in a big firm. When you’re managing someone else’s money, it’s easier to be flippant about overspending. If you sit at middle-level in the managerial hierarchy, problems will often be moved upwards for someone else at a more senior level to take charge of.

And if bad managers continue on as non-performers, the organisation has sufficient resources to not only fix the problem they’ve created, but also to invest in dealing with that person’s behaviour.

Small firms pay for bad management with their existence; big firms can afford to prosecute, promote or pay out non-performers.

Finally – perhaps most importantly – the owners (shareholders) of a large company rarely act as the senior managers. The link between ownership and operational responsibility is weak, so there’s less direct pressure to ensure that mistakes are minimised.

Despite all the theory that management schools teach you, the reality is that mistakes and bad judgement will almost inevitably occur at some time or another in every business. Bosses, like employees, are not simple, easily programmable machines that can be trained to always get things right.

But for entrepreneurs, the margin for error – and the chance to recover from a mistake – is much thinner.

Professor Michael Schaper is Dean of the Murdoch University Business School in Western Australia. m.schaper@murdoch.edu.au

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