Do stakeholders of the company truly understand the root causes behind a firm’s bankruptcy or declining profitability? This question has been debated for decades in boardrooms, classrooms, and case studies across the world.

On the surface, financial statements might point toward liquidity issues, poor sales, or operational inefficiencies, but in reality, these are often symptoms rather than causes. The real reasons usually lie deep within the organisation — in its culture, leadership choices, and governance practices.

The Harvard Business Review (HBR) has examined countless corporate collapses, and one pattern repeatedly emerges, toxic management cultures combined with lobbying behavior destroy value faster than market competition ever could. A famous case study published by HBR analysed the downfall of Enron, once hailed as America’s most innovative company. Enron’s leadership, under Jeffrey Skilling and Kenneth Lay, created a culture of manipulation, arrogance, and deceit.

The board of directors failed to exercise oversight, while internal auditors were silenced or replaced. Lobbying, both internal and external, kept the illusion alive. Executives influenced policies, investors, and even regulators to sustain an image of profitability that did not exist. The result was catastrophic — billions lost, thousands unemployed, and a reputation permanently tarnished.

Toxic management is a concept deeply studied in organisational behavior. It refers to leadership practices that prioritise personal power, manipulation, and control over transparency, ethics, and performance.

The Toxic Triangle Theory (Padilla, Hogan & Kaiser, 2007) explains how destructive leaders, susceptible followers, and conducive environments combine to create disasters. When CEOs appoint teams from their former organisations, they are often loyalists who reinforce their authority — the company risks losing its diversity of thought. Instead of collaboration, groups think prevails. This eliminates constructive criticism and innovation, which are essential for growth. The practice may seem efficient initially, as it fosters trust and familiarity, but it often evolves into a political network that suppresses internal talent and breeds resentment among long-serving employees.

The same pattern can be seen in case studies of companies like Uber under Travis Kalanick, where a culture of aggression, exclusion, and political favoritism led to internal turmoil and external scandal. Kalanick’s inability to control the toxic work environment eventually forced his resignation. HBR’s retrospective on Uber described this as a “leadership vacuum,” where unchecked loyalty and lobbying led to ethical decay and loss of brand reputation.

Lobbying, in its corporate form, extends beyond government relations. It happens inside the boardroom. It occurs when senior executives maneuver decisions to favour their own interests or when influential directors manipulate CEO appointments. Scholars like Hillman and Hitt (1999) defined corporate political activity (CPA) as firms’ efforts to influence public policy for competitive advantage. But internally, lobbying becomes far more dangerous — it morphs into informal power networks that marginalise competence and reward obedience. The “politics of loyalty” replaces meritocracy, leading to inefficiency, demotivation, and talent drain.

Consider the case of Nokia, once a global leader in mobile technology. The company’s collapse, as documented in HBR’s “The Rise and Fall of Nokia,” wasn’t merely technological. It was political. Top management was trapped in lobbying behavior — protecting personal status and resisting innovation proposed by subordinates. Dissenting engineers and product designers were ignored, and by the time leadership realised the market shift toward smartphones, it was too late. The internal politics suffocated the very creativity that once defined the company.

Another relevant theory is Agency Theory, which explains the conflict between principals (shareholders) and agents (management). When lobbying and internal politics dominate, agents act for their own benefit, not for the firm’s long-term interests. This misalignment destroys shareholder value. Toxic managers often prioritise short-term performance metrics to justify their control, concealing real risks. The Lehman Brothers collapse in 2008 reflects this — executives overrode internal risk warnings to maintain their market image. The board and regulators, influenced by corporate lobbying and overconfidence, failed to act in time.

So, who is to blame — the board or the CEO? In truth, both share responsibility. A weak board that cannot challenge the CEO fosters unchecked power. Conversely, a CEO who brings a loyal team rather than qualified professionals undermines institutional stability. Good governance requires independent oversight and open dialogue. Harvard Business Review emphasises that sustainable companies nurture cultures where executives are questioned, not worshiped; where transparency outweighs politics.

When a new CEO joins and replaces key executives with his old colleagues, it should raise alarms. While bringing a few trusted professionals can help ensure alignment, doing so excessively erases the company’s institutional memory. It alienates existing employees, leading to talent attrition and mistrust. Morale declines as capable staff realise that performance no longer determines promotion — proximity to power does. This is how toxic management takes root.

Most companies do not fail because of markets — they fail because of management. Stakeholders must understand that bankruptcy and declining profits often stem from invisible cancers; lobbying, ego-driven leadership, and toxic decision-making.

The lesson from Enron, Nokia, and Uber is clear — without ethical governance, diversity of thought, and accountability, even the most profitable firms can collapse.

HBR often reminds us, “Culture eats strategy for breakfast,” and when that culture is poisoned by politics, no amount of talent can save the organization.

 

The author works at Middle East College

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