An executive rises through the ranks at a large organization and becomes C.E.O.  He makes terrible decisions or is a passive leader, letting the firm slide into obscurity.  The firm is publicly traded and poor performance is observable.  But the C.E.O. manages to get another great job, leading a “turnaround” at another large organization.  He uses the same strategy that performed so badly in the first firm.  His second firm also goes down the tube.  This story is loosely based on an example I use in one of my M.B.A. classes.  And I have another new example.  How can it happen?

The first theory is pretty simple.  If a project fails, it is hard to know where to lay the blame – the economic climate, the C.E.O., bad luck etc. etc.  The the C.E.O. can come up with a story that helps him look like a leader not a loser.  Even worse, the people he works with want to get rid of him.  Perhaps they say nice things and sell a lemon to someone else.  The potential recipients of the lemon should know the perverse incentives in play and avoid the winner’s curse.  Perhaps the consult insiders they trust and with whom they will likely have a long future relationship.

But this theory does not accommodate cases where the C.E.O. publicly proposed and pushed a failed strategy at the first firm.  Or very obviously did not do his job.  Even these characters can pull off a successful exit.  The rationale for this phenomenon has two parts: (a) the pool of viable potential leaders is small and (b) very few people have the experience of running a large organization.  So, even if they performed poorly, perhaps they can learn from their mistakes and do better the second time around.

This presumes that a known bad performer carries less risk than an unknown performer because the former has experience.  I find it hard to believe.  A rational choice interpretation would be nice for the conscious purchase of a known experienced lemon who might change over a potential inexperienced mango.