Read annual reports after a company has a bad year, and you will usually see a report from the CEO that describes a company that worked correctly and hard but was victimized by "temporary conditions." The CEO will then indicate optimism that those conditions will soon leave and performance will improve.
When you read the next year's annual report, it may repeat the same mantra. Come back after a few more years, and a new CEO will be writing about new plans to help the company recover its health.
Perhaps the first CEO should have spent time thinking about how a new strategy could have delivered prosperity during those "temporary conditions."
How common is this kind of wishful thinking? Those who attend conferences where CEOs describe their companies report that all such talks reveal only good news and usually deny the existence of bad news or even of risk to the current direction.
If there is any current shortfall in reported financial results, the listeners will be told that this is somehow due to the weather, the number of shopping days involved, or some other factor outside of the company's control. The CEOs seem to feel they should be excused by investors for any shortfall unless perfect conditions for their strategy prevail for their enterprises.
The result is a sense of smugness about the current direction. But the problem is even worse than that: When the CEO or organizational leader takes no personal responsibility for anything and is not candid about organizational performance, a whole culture of defensive doublespeak can develop.
Instead of attacking problems, euphonious excuses are sought and articulated (in ordinary English, this is the search for self-excusing alibis that sound good). Everyone in the company soon learns to do the same thing. Meetings often degenerate into a vast wallowing in self-pity about all of the bad luck that the group has had. The fact that every other effectively performing enterprise had to endure the same "bad luck" fails to dawn on the people in the self-pitying company. Investors should flee when they see such self-justifying statements.
Let's consider an example. In 1998, AMP (the big connector company) reported poor profit and growth results, and blamed much of the problem on weakness in Asian markets. A hostile takeover was launched by Allied Signal claiming that AMP had do-nothing management.
AMP was eventually sold to a friendly bidder, Tyco International. Curiously, one of AMP's key competitors, Molex, did reasonably well during this same period as it quickly adapted from mostly selling its products in Asia to shipping products from Asia to North American and European markets. Could AMP have been experiencing the Defensiveness Stall?
