Why Companies Deteriorate: Leadership, Accountability and Complexity

“Companies are the backbone of our society, and many are terribly managed, and there’s no accountability.”

- Carl Icahn, Icahn: The Restless Billionaire

Across acquisitions, bankruptcies, restructurings, ecommerce launches, licensing models, marketplaces, wholesale businesses, technology transitions, and complex relationships between brands and operators, we have seen many versions of the same problem. Companies rarely deteriorate because of one catastrophic decision. More often, problems accumulate gradually while the organization continues moving forward.

Contracts are signed that the business may never realistically fulfill. Costs increase faster than revenue. Leadership structures become more complicated. Executives are hired without clear authority. Technology, agencies, vendors, and management layers continue to accumulate. Financial visibility weakens, decisions take longer, and problems that were once manageable become increasingly difficult to unwind.

There are always multiple parties involved in the performance of a business. Boards, investors, executives, managers, employees, partners, advisors, licensees, distributors, and other stakeholders can all influence the outcome. But ultimately, the CEO is responsible for the company they are leading, the structure they create, the leaders they empower, and whether the organization is capable of identifying problems while there is still time to respond.

What is the CEO accountable for?

A CEO does not need to personally manage every employee, approve every expense, or understand every operational detail. They do need to understand how the business works. That includes knowing how the company makes money, where it loses money, what its major costs are, how capital is being allocated, who owns each critical function, and whether the organization can realistically deliver against the commitments it has made.

In practice, that visibility is often weaker than it should be. We have seen organizations where leadership could not clearly explain parts of the P&L, where nobody could easily articulate total technology or agency spend, and where responsibilities overlapped between senior executives. We have also seen leaders held accountable for outcomes without meaningful control over the people, budgets, systems, partners, or processes required to achieve them.

The expectation is not that a CEO knows everything happening everywhere. The expectation is that they build a company capable of surfacing the information that matters, put capable people in charge, create clear decision rights, and act when the facts challenge the current plan.

Growth changes the company

One of the biggest mistakes companies make is assuming that the operating structure that brought them to one stage of growth will automatically take them to the next. As a business expands, the way budgets are built, people are managed, technology is purchased, responsibilities are divided, decisions are made, and culture is maintained all need to evolve with it.

A founder may once have known every employee personally. A CEO may once have approved every meaningful expenditure. A department that originally needed three people may eventually need 30, while another department that grew to 30 may no longer need all 30. A technology stack that made sense three years ago may now include overlapping platforms, redundant agencies, expensive integrations, and contracts that nobody has reassessed.

The same applies as businesses add brands, markets, channels, locations, licensees, distributors, marketplaces, wholesale partners, and outside service providers. Each layer can add value, but each also adds complexity. The risk begins when the complexity grows faster than the company’s ability to understand and manage it.

Growth should therefore trigger reassessment, not just expansion. Organizational structures, cost structures, management layers, technology, partners, and decision processes should all be reviewed as the business evolves.

Responsibility without authority

As companies become more complex, CEOs have to rely on people with expertise they may not personally have. One leader may understand brand building, another ecommerce, another wholesale, marketplaces, finance, technology, operations, or international distribution. That is normal, and it is why strong leadership teams exist.

The problem begins when responsibility and authority are separated. An executive may be hired to grow a channel, improve margins, reduce costs, fix technology, restructure an operation, or transform part of the business, but still lack the authority to change the people, budget, systems, vendors, or processes affecting the result.

When that happens, the company can create an accountability structure that does not actually work. The executive owns the outcome on paper, but the levers required to influence the outcome remain somewhere else.

The CEO can delegate work and decision-making. They cannot delegate responsibility for whether the organization itself has been designed in a way that allows its leaders to succeed.

The company leadership sees may not be the company that exists

One of the most important gaps inside a growing organization is the difference between how the company looks from the top and how it actually operates throughout the business. The CEO sees one version, the CFO another, functional executives another, middle management another, and employees closest to the work may experience something entirely different.

None of those perspectives is necessarily wrong, but none is complete. Leadership may believe a department is performing well because the executive leading it presents strong results, while people inside that department know the team is struggling to function. A technology investment may appear essential at the executive level while employees using it know another system already performs the same function. A company may believe it is understaffed when the underlying problem is unclear responsibilities, inefficient processes, or weak management.

The same issue appears across financial and operating decisions. A growth problem may actually be a margin problem. A margin problem may be tied to inventory. A technology problem may actually be a process problem. A staffing problem may ultimately be a leadership problem.

The larger and more complex the organization becomes, the harder it is for any one person to see the entire picture. That makes it increasingly important to compare what leadership believes is happening with what the financial data, operating structure, employees, partners, and processes actually show.

The visible problem is not always the underlying problem. More marketing will not fix unclear ownership. New technology will not repair a broken process. Additional headcount will not compensate for ineffective management. In some cases, faster growth can actually make an unhealthy operating structure more difficult to manage.

Before asking how the company can grow faster, leadership may first need to understand what is preventing the business it already has from operating better.

Accountability should happen before the crisis

There is an uncomfortable reality to looking closely at how a company operates. A serious review may expose unnecessary spending, duplicated functions, poor leadership, weak processes, bad contracts, ineffective partners, or roles that no longer make sense. It may lead to difficult decisions involving employees, vendors, investments, or organizational structure.

Waiting does not eliminate those consequences. In many cases, it makes them significantly larger. We have seen businesses wait until the available options became restructuring, litigation, emergency cost cutting, large-scale layoffs, failed partnerships, or bankruptcy.

Those outcomes affect far more than a balance sheet. They affect employees, families, vendors, partners, customers, and communities that depend on the company continuing to operate. A disciplined review may result in changes affecting a smaller number of people today, but it can also help protect hundreds or thousands of jobs by addressing problems while the business still has choices.

The purpose of reviewing the business before a crisis is not to eliminate difficult decisions. It is to make those decisions while leadership still has meaningful options.

Why this matters to us

RDigital was built from operating experience across brand growth, acquisitions, bankruptcies, ecommerce launches, marketplace businesses, technology transitions, licensing structures, and complex relationships between brands, operators, manufacturers, distributors, retailers, agencies, and technology providers.

That experience has reinforced the importance of examining a business as a connected system rather than a collection of individual functions. Financial structure, leadership, people, technology, partners, channels, and operating processes all influence one another, and fixing one area without understanding the others can create new problems somewhere else.

It has also reinforced the value of looking at a business from the outside in. Rather than beginning with a predetermined answer, such as more marketing, different technology, additional headcount, or another agency, the first step should be understanding how the company is actually operating and where the underlying gaps exist.

That thinking led to the RDigital Operator Health Framework.

RDigital's Operator Health Framework

Our Operator Health Framework examines a business across five interconnected areas. The purpose is not to evaluate each area in isolation, but to understand how they influence one another and where weaknesses in one part of the company may be creating problems somewhere else.

Together, those five areas create a more complete view of the company than looking at growth, technology, finance, people, or operations independently.

From assessment to action

RDigital's Operator Health Framework can be applied at different levels depending on the needs, size, and complexity of the business. Companies can evaluate one area, several areas, or the full framework, and can engage RDigital for a focused review, broader strategic assessment, or ongoing advisory and execution support.

The value is having choices

The objective is not to walk into a company and tell everyone what they are doing wrong. It is to help leadership develop a clearer and more objective view of the company they are actually running, identify what may be getting in the way, and create a practical path forward.

Companies will always make mistakes. Strategies will change, investments will fail, markets will move, and unexpected problems will occur. The goal is not to eliminate every risk. It is to create an organization capable of seeing problems earlier, understanding them more clearly, and responding while leadership still has meaningful choices.

Accountability should not begin after a company fails. It should be part of how companies prevent avoidable failure in the first place.

Learn more about our Business Health Assessment, Operator Health Review, and advisory services.

Sources

1. HBO, Icahn: The Restless Billionaire, 2022.
2. Transcript excerpt containing the Carl Icahn quote used above, Icahn: The Restless Billionaire.