Enron, Hurricane Katrina Examples of Leadership Gone Wrong

Poor crisis leadership was on display after Hurricane Katrina and during the financial crisis.

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The New Orleans masses who huddled in the Superdome after Hurricane Katrina, the Enron retirees who lost their life savings, and the laid-off workers buried under the economic ruin of financial companies all live with a simple truth. Just as spectacularly as great leadership can spark success, failed leadership can bring down cities, businesses, and economies.

The collapse of major financial companies starting with Bear Stearns, the stunningly botched reaction to Katrina, the inept federal response to tips about Bernard Madoff's Ponzi scheme, and the financial sleight of hand that brought down Enron are only the latest examples of leadership failure. "We keep making the same stupid mistakes, generation after generation," says William Baker, who holds a doctorate in industrial psychology and is the journalist in residence at Fordham University.

Many of the most stunning leadership disasters have common ingredients, such as executives who lack integrity and build organizational cultures where dissent isn't heard. "Leadership is not position. It's moral authority. Moral authority comes from following universal and timeless principles like honesty, integrity, treating people with respect," says Stephen Covey, author of several bestselling books on leadership and self-improvement, including The 7 Habits of Highly Effective People. Baker, author of Leading With Kindness, agrees that massive failures often can be traced back to leaders who don't listen.

The financial meltdown, which started with risky financial deals and ended with millions of everyday people losing jobs or homes, was an example. "When the Mercedes was coming right up to the cliff, there were plenty of people who knew. They were either afraid to say so because the boss was imperious, or he didn't listen," Baker says.

Part of the problem: The wrong people are often chosen to head organizations. "We go for these effervescent leaders when what's really needed is a dull, focused, plodding [person] building effective groups and organizations," says Timothy Judge, chair of management at the University of Florida business school. It turns out that being an extrovert is highly correlated with being chosen as a leader but not with being a good one, he says.

Moral compass. Karen Rothenberg, who just stepped down after 10 years as dean of the University of Maryland Law School, says a lack of both training and role models for future leaders can contribute to failures. As dean, she pushed for more emphasis on leadership in the classrooms. "So many times, what you need is someone to say: 'You're not going to like me. But you can't do that,' " says Rothenberg.

Whether it's talking about bullying in elementary school or standing up to a law partner, the focus on moral compass needs to start early and be reinforced with examples of leaders who made good choices, she says.

Some failures can be useful if leaders learn from them, says Robert Mittelstaedt, dean of Arizona State University's business school and author of Will Your Next Mistake Be Fatal? The three biggest causes of failures he sees are not believing data, disregarding new phenomena, and not taking responsibility for problems.

Hurricane Katrina holds plenty of those lessons, says Mittelstaedt, a New Orleans native whose mother rode out the storm to care for an elderly aunt. He points out that for years a wealth of information was available that New Orleans couldn't withstand a major storm, but officials didn't act on the data. And after the levees broke, officials ignored information about the scope of suffering by those stranded in the city. He faults then President Bush and others for not taking responsibility and instead arguing about whose job it was to rescue people. "When you see people on rooftops, you don't sit around worrying about whose responsibility it is," says Mittelstaedt.

The financial industry meltdown and the lack of regulation in cases like that of swindler Madoff are good examples of ignoring the mounting evidence of trouble and not taking responsibility quickly to solve the problem, he says. A recent report from the Securities and Exchange Commission's inspector general laid out a textbook case of failure; multiple investigators ignored 16 years' worth of red flags that should have uncovered Madoff's Ponzi scheme long before investors lost millions.