Smart people, stupid choices: in Chief Executive's quarter century of existence, we've seen CEOs make big mistakes. A few learn from them - Chief Catastrophes - corporate management - Statistical Data Included

Chief Executive, The, August-Sept, 2002 by Catherine Fredman

SLOTH. The company that defined defective product litigation: After thousands of American women claimed they suffered from infertility, spontaneous abortions and pelvic disease as a result of using the Dalkon Shield intrauterine device (IUD), manufacturer A.H. Robins stopped U.S. sales--four years after bringing it to market. The tragedy could easily have been avoided if the company had heeded warnings from a co-inventor of the product, a quality-control supervisor, as well as early reports of injuries suffered by users.

Instead, A.H. Robins destroyed some of the documents concerning the controversial contraceptive, waited years before alerting women to its danger, and, according to federal court-appointed officials, engaged in a fraud to misrepresent "the nature, quality, safety and efficacy" of the device. Overwhelmed by more than 400,000 claims, Robins petitioned for bankruptcy in 1985 to avoid paying. The company was ultimately acquired by American Home Products, which placed about $2.3 billion into a trust fund to compensate Dalkon Shield victims.

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Three Leaders who learned from their mistakes

For some, a mistake is not so much cause for castigation or a lapse to be papered over as an opportunity to learn. "World-class leaders don't run from these lessons," says Noel Tichy, author of The Cycle of Leadership: How Great Leaders Teach Their Companies to Win (HarperBusiness, 2002). "They try to grow from them." Here are three examples, in the CEOs' own words.

MICHAEL DELL, chairman and CEO, Dell Computer

Dell has always been a company that takes pride in -- and direction from -- customers. The direct nature of our relationship with our customers, more than anything else, has been the key to our success. But when we started working on the Olympic project in 1988, we forgot about creating technology for the customer's sake. In creating technology for technology's sake, we fell right into the trap we'd been so proud of avoiding.

The Olympic family of products spanned desktop, workstation and server markets, with single and dual processors and many different operating systems. It was incredibly ambitious for a four-year-old company. Olympic consumed perhaps half of our R&D budget. It involved lots of technology that we hadn't had much experience with, so we hired a tremendous number of engineers.

We started introducing prototypes to our customers. The majority of them said, "Thanks very much, but we don't need that much technology." I often say that mistakes are learning opportunities. Olympic was a learning opportunity of, well, Olympic proportions. We learned to identify potential problems early--and fix them fast. We shut the project down before any of the products ever saw the [commercial] light of day. The most important lesson was to involve our customers early and often in development. If we had consulted them first, we could have saved a lot of time and aggravation.

Lastly, we also committed to a set of principles regarding "buy versus make." At the time, most of the computer industry subscribed to a "we-have-to-develop-everything" view. But we realized that while there were times when it made sense to invent things ourselves, there were times when it made more sense to leave the R&D to our suppliers. Figuring out the difference helped us focus on how best to use our engineers.