Fifteen fatal failures for an executive.

If you aspire to the position of CFO--or even CEO--in your company, it helps to learn lessons from those who know the executive territory. Here, J. W. McLean, a 26-year veteran CEO in banking, describes 15 managerial mistakes.

ONE: Failure to perceive the secular trend. XYZ Home Ice Service was a regional leader years ago in basic residential refrigeration. Its market share was dominant in six or seven nearby communities for the manufacture and delivery of ice (and iceboxes).

Fatal flaw? Its primary service and product lines--while "cash cows" for years--were to have little following later, as more sophisticated electrical refrigeration emerged.

Commentary: Unlike dozens of entrepreneurs in the ice/icebox business who became early and very successful electrical appliance dealers, the head of XYZ, one of the community's strongest leaders, never saw the economic inevitability of the long-term trend in the business that he had founded and he failed to modify the mix of its product line or service. XYZ might well have survived by considering itself in the refrigeration business rather than the ice business.

TWO: Failure to recognize the cyclical trend. XYZ Fashions of Dallas had developed a statewide following as a leader in ladies' high fashion apparel.

Fatal flaw? Its expensive, popular product lines were vastly over-stocked and inventories were bulging well beyond the capacity of a flat to downward market to absorb, just when the economic business cycle of the region turned negative.

Commentary: A vain and over-confident management, blinded by its trendy publicity, narrowly escaped closing its doors when it failed to heed a well-publicized correction cycle in oil and gas prices. How quickly such cyclical trends can erode sales volume of luxury items especially in a single-industry-based economy, no matter how successful the establishment has been in headier days.

THREE: Failure to respect the seasonal trend. XYZ Foods was a borrowing customer of our bank during its formative years. The superior reputation for premium meats that it earned over the years had been good for its widening profit margin.

Fatal flaw? Because of its dominant market share, management was unconcerned with the subtle effect of the seasonality of a growing proportion of the company's product line.

Commentary: While a more sophisticated and discriminating public was learning about specialty foods for warmer weather, with little aversion to their higher price tags, a preoccupied and complacent management failed to adjust its product line accordingly. Three years of seasonality cut annual revenues nearly in half, requiring an unwanted consolidation in order to bail out pressing financial difficulties.

FOUR: Failure to remain abreast of technology and its dynamic effect upon competitive product design. XYZ Telecommunications was led during the 1960s by a tough-minded accountant who delivered 58 straight quarters of earnings growth.

Fatal flaw? Almost oblivious to chip technology that would spell the demise of the older analog system, management elected to forego the expense of market rewearch in favor of a rash of worldwide acquisitions.

Commentary: Trained observers now say that attempts to compensate for the basic error of ignoring technological changes in the company's marketplace have permanently cost this giant a chance for real leadership in telecommunications. The case stresses the indispensability of market research.

FIVE: Failure to monitor competition. XYZ Motors, always concerned with its so-called market penetration, was an industry leader in offering options to a fickle public, so much so that no competitor in the early 1950s could begin to match XYZ's more than 900 combinations of alternate specifications in its mid-range priced automobile.

Fatal flaw? XYZ and other giants of the industry, apparently so impressed with their attempts to saturate the market with "customer choices," failed to focus on the lowest end of their product mix.

Commentary: How wrong it was for the big car makers to refuse to recognize the size and need of the low end of the market, the alternative to the used car. for it was here that single-minded foreign manufacturers were able to establish themselves as both cheaper and better builders of transportation, a perception that serves them well today at all price levels.

SIX: Failure to make a distinction between tangible products and intangible services. XYZ Stores was one of the first to launch in-store financial centers in 1982. The idea was to sell its "one-stop customers" such things as homes, securities, mortgages, CDs, personal loans, and credit cards with checking privileges.

Fatal flaw? Selling stocks next to socks just didn't make it. Similarly, financial service sales simply failed to follow walking traffic density patterns. People just didn't treat their individual banking needs with the same degree of casualness as getting something for the kitchen.

Commentary: Attempting to deliver financial services through nontraditional channels fails to delineate between tangible products and intangible services. For example XYZ learned the hard way that 80 to 90 percent of business with a securities broker is conducted by telephone.

SEVEN: Failure to maintain a strong organizational structure. The XYZ Tool & Die Company was well entrenched in its industry with a relatively stable product/service mix presented to the trade in eight cities between Houston and Denver. It had enjoyed a respectable, albeit flat, earning power for nearly ten years. In mid-year 1960, an exclusive new product line virtually took off in sales and an immediate and growing backlog or orders resulted from its almost overwhelming customer acceptance.

Fatal flaw? XYZ's table of organization had never been complete, and the sudden windfall of new business quickly made it necessary for quite a number of the veteran employees to take on extra duties. Management let this crisis condition--though highly profitable--go on much too long; it ultimately led to a complete turnover of the management team.

Commentary: The absence of a carefully constructed organization chart with a mechanism for its periodic improvement is a serious management omission. Pressing busy personnel into functions for which they are untrained is rarely satisfactory for long and often can be counterproductive in terms of staff overload, unwated attrition, and more seriously, inept performance.

EIGHT: Failure to substitute participate management for top-down decision-making. XYZ Building Supply Stores was a genuine Horatio Alger success story. It was begun more than 40 years ago by its founder--and only chief executive. He was shrewd and calculating in making the right business decisions for the stores, handling almost every management detail personally. He was completely condescending, in a lovable sort of way, to everyone around him. But, since everyone knew and accepted J.P's unique style for what it was, XYZ Stores flourished and had expanded into five states before he died at 83.

Fatal Flaw? Upon the death of the founder and the selection of a third-generation family successor who quickly tried to emulate his style, there was a downward spiral in morale that nearly killed the company. Only an unwanted takeover 18 months later stemmed the hemorrhage of resignations by key old-timers.

Commentary: An interesting and quite predictable study in human nature. The founder's management style was clearly obsolete, but he succeeded in spite of it. Regrettably, however, he also excelled in welling up an enormous wall of pent-up frustration ready to burst when, even at his death, there was still no opportunity to participate in the decision-making process.

NINE: Failure to reject greed. XYZ Drilling Company, although only marginally capitalized, managed to sustain stable and attractive earnings during the early 1950s through large short-term borrowings, secured by major oil company accounts receivable. Its four oil and gas drilling rigs were fully financed by a leading supply company, with a resulting long-term debt-to-worth ratio of about 10 to 1--lots of leverage for a small drilling company, wholly owned by its founder.

Fatal flaw? It took only a cool breeze in the energy economy to drop XYZ's net revenues below the level needed to service its mountain of debt. The bank was out in about a hundred days as the receivables liquidated, but the supply company was stuck with the rigs for over a year and the sole owner lost his entire equity investment.

Commentary: The shortsightedness--indeed, the greed--of ambitious owners, who are reluctant to give up ownership in exchange for a more stable capital base, can so easily result in their entire investment capital being wiped out. If only they could settle for a lesser ownership in the beginning by financing the business with invested dollars from partners, rather than the borrowed dollars of creditors, which can only be repaid from prolonged periods of uninterrupted profits.

TEN: Failure to respect debt. The patented process of XYZ Scope, Inc., had earned a virtually exclusive niche in the oil patch, and the successful founder and sole owner's net worth had grown to more than $12 million in about ten years.

Fatal flaw? The owner wanted to pledge up to half his xyz stock for a $4 1/2 million loan to buy the old World War II Liaison Aircraft Company (not the real name). He felt it would be easy enough to augment the $30,000 plane's radio and navigation equipment for less than $50,000 each and preempt the business executive market with a private, four-passenger carrier priced under $100,000, capable of six hours aloft and a cruising speed of 180 knots. Plus, he loved the airplane.

Commentary: Because XYZ paid no dividends, such a loan could be paid only by the sale of assets, or an immediately successful venture into a highly speculative new field, all financed by otherwise unmanageable heavy indebtedness. The loan would have no primary source of repayment (much less secondary), except through distressed sale of stock of one or both of the companies. In short, to finance the owner's excitement for the plane, yet to be modified, all on borrowed money with no certain plan of repayment simply did not meet many banks' basic lending policy requirements.

However, one bank did make the loan and captured both the XYZ and Liaison Aircraft banking relationships. But, in just 14 months, Liaison was struggling and deeply in the red; the owner had suffered a massive heart attack and lost controlling ownership of both companies.

ELEVEN: Failure to develop a balanced vision for the business. The XYZ Bank & Trust Company was a stodgy, but highly respected, third-generation bank in a prosperous county seat town in east Texas. Because it made few loans, a disproportionate share of its resources were invested in long-term government securities. Accordingly, the father-and-son management team devoted at least half their office hours to discussing and/or trading government bonds for the bank's account.

Fatal flaw? Both finally succumbed to the same compulsive trading allure that has taken its toll so savagely in the commodity markets. Part of the seduction, of course, was the heady feeling of controlling and moving around all those millions, even though most of the money belonged to the depositors. The part that belonged to them as shareholders was ultimately wiped out when long-term bond rates peaked at nearly 16 percent in the fall of 1981. With each new high in rates, bond values of course declined and the bank's precious liquidity was further eroded in favor of purchasing a still longer maturity at a new high yield. When the aggregate cost of the portfolio exceeded its market value by more than the bank's capital funds, regulators had no choice but to close the bank--effectively wiping out the owners--and find a nearby successor bank to salvage the remains of what had once been a landmark institution.

Commentary: The prudent policy of guarding the quality of its loans by simply saying "no" in slow business periods had served the owners well. But to go to the other extreme by making massive long-term commitments in bonds whose value tumbled when rates of interest made their historic climb was a fatal blunder.

TWELVE: Failure to harness vision. XYZ-TECH, Inc., wa still in its infancy, only 18 months in business. It was resonably well financed by high-risk venture capitalists, and its pending patents promised large, new money management benefits to the consumer. The chief executive, a truly inventive entrepreneur, envisioned an outright sale of the company to one of three nationwide financial service giants. His vision was closed to any other action.

Fatal flaw? In another time, perhaps no flaw at all. This single-minded maverick might well have made it big in one giant step. But, he was "hypervisionary"--he had an excessively unrealistic image of future prospects.

Commentary: As this is written, however, all is not lost for XYZ-TECH. The chief executive has finally harnessed his vision; the giant sale is on hold; and a pilot test of one of the company's major products is being negotiated with a progressive local bank--all just in time, hopefully, to launch a successful shareholder assessment for necessary capital funds.

THIRTEEN: Failure to observe the ethical dimension. XYZ Motors had outgrown every other automobile dealer in the state and now--in its 25th year--was recognized as both the volume and service leader in the region for its well-established brands. Second-generation management was experienced and competent, with a good record of earnings, and was a large user of our bank's floor plan line of credit.

Fatal flaw? A thoughtless shortcut led to a buildup in exposed borrowings (that is, unsecured by a properly margined vehicle inventory), and, eventually, the line of credit was--as bank examiners would say--"out of trust." This means: too much owing on too few cars. The shortcut was simply not to worry about paying down the floor plan line of credit as cars were sold.

Commentary: This of course created both an overextended debt position and a false sense of liquidity in the cash account, which was unfortunately used for extravagant purpose. One of those purposes was a headstrong investment in real estate which, in turn, led to a strained financial condition that finally resulted in cancellation of the bank's line of credit and involuntary liquidation of the business. What a different scenario it might have been if, instead of the early shortcut, XYZ Motors' management had been more attentive to the ethical dimension of its busines.

FOURTEEN: Failure to make the management/leadership distinction. XYZ National Bank and ABC National Bank were heated rivals in a distant city. The gap between them in total resources had narrowed considerably by 1976, two years after the death of XYZ's dynamic leader and founder. The directors of XYZ--much the larger in 1974--had moved quickly to fill the vacancy by elevating the trusted and ultraconservative executive vice president and controller. "He sure won't get us into trouble," was the rationale.

Fatal flaw? This well-meaning, former middle manager was not just ultraconservative; he was also the consummate pessimist. While Charlie was managing instead of leading, ABC had caugh XYZ from behind and, on a couple of call dates, was in fact larger in both total resources and earnings.

Commentary: ABC National Bank's CEO was an acknowledged leader who had learned early on that the most effective way to advance his own career was to take the time to reach down and help others achieve their own brand of success. Five years earlier, he had installed both group and personal goal-setting systems, all geared to incentive compensation, for key executives. His participative style had worked well and the bank's effective team of executives grew larger each year, as ABC directors authorized expanding the system to include more and more participants.

FIFTEEN: Failure to understand the true definition of success. The chairman and CEO of XYZ Corp. had seemingly done nearly everything just right in the building of a then leading specialty foods conglomerate. The year was 1978. It had all been the result of this broad and incisive vision of both the industry and XYZ's particular niche, which the chairman and his effective team of executives were able to fulfill with steadily growing profitability.

Fatal flaw? The recognized "captain of industry," about to break into the Fortune 500, was miserable! It was as though the previous 20 years had been wasted in a misdirected zeal to achieve conventional material gain at the expense of all else.

Commentary: No survey has been contrived for identifying bosses whose eyes are "on the wrong ball" for achieving long-term success. If one is ever concocted, I'm sure its reliability will depend upon the extent to which the respondent is made to distinguish between success and happiness.

Adapted from So You Want to Be the Boss?, A CEO's Lessons in Leadership, J.W. McLean, [C] 1990. By permission of Prentice Hall, Inc., Englewood Cliffs, NJ 07632.