Activist: Stale Ideas Killed AIG, Lehman

As we all try to digest the unprecedented volatility that has besieged the stock market this week, with Lehman Brothers (LEH Quote) and Merrill Lynch (MER Quote) now washed away, there is one question that is often repeated: How could so many smart people get things so wrong? It wasn't hubris or laziness. It was the inability of the board members and CEOs to look at the problems facing their companies with fresh eyes.

Newcomers like John Thain at Merrill took decisive actions to create the maximum shareholder value under the circumstances. Old-time CEOs like Dick Fuld at Lehman and Robert Willumstad at AIG(AIG Quote), who is a new CEO but has been on AIG's board since 2006, dawdled, and their companies are now paying the price -- one with bankruptcy and the other agreeing to a government bailout last night.

Management theorists Don Hambrick and Danny Miller conducted a study on the seasons of a CEO's tenure 20 years ago. They found that CEOs had the freshest eyes early in their tenure. They revisited old decisions made by their predecessors and charted a course for the organization under their leadership. After only a few years though, the CEOs began running their companies from within the prism of their past decisions. If their strategy didn't work out, they would defend it, stating that it simply needed more time. ...