Mad Hatter

What Is a Mad Hatter?

A mad hatter is a chief executive officer (CEO) whose ability to lead a company is highly suspect. Mad Hatter CEOs are often characterized by misconduct or impulsive and puzzling decisions that employees, board members, and shareholders may question. They often act spontaneously with little regard for viable alternatives or consequences.

Key Takeaways

  • A Mad Hatter in business is a top executive who baffles employees and shareholders by consistently displaying poor judgment, questionable conduct, or both.
  • The Mad Hatter in a public company may be pushed out by shareholders and the board of directors.
  • Not much can be done about a Mad Hatter in a private company, who may hold the financial strings.

Understanding a Mad Hatter

The original Mad Hatter is one of the many eccentric characters in Lewis Carroll's Alice's Adventures in Wonderland, known as "the Hatter." At the tea table, Alice meets the Hatter, who is eternally caught in tea time and constantly quizzes Alice with nonsensical and unanswerable questions.

Carroll got his character's name from the belief that hatters in his time went mad from the poisonous vapors of the mercurous nitrate they used to cure felt.

In the corporate world, the term Mad Hatter refers to a leader or CEO of a company who is ill-equipped for the role. They might have assumed power because they were founders of the company, through nepotism, or due to a poorly planned succession protocol.

Private and Public Mad Hatters

Once in power, Mad Hatter CEOs tend to exhibit poor decision-making skills by acting out of self-interest, haste, ego, or gut feelings. As a result of incompetent, incapable, or misguided leadership at the top, the morale of managers and employees suffers.

Typically, Mad Hatter CEOs are either removed or stay in power until their companies are run into the ground.

Mad Hatters at the helm are more common in privately held companies, as they are often the founders and the source of the money behind the business. The combination of these factors often results in power that cannot be challenged, even when the shortcomings of the leader-in-charge are obvious.

Mad Hatter CEOs of public companies do not have the same level of job security as their counterparts in private companies, due to their many stakeholders with voting rights and their boards of directors.

Mad Hatters and Shareholder Activism

Shareholder activism is often criticized as being based on generating short-term gains regardless of long-term costs, but the removal of a Mad Hatter CEO can make the difference between a company's survival and failure.

Shareholder activism can take the form of proxy battles, litigation, or publicity campaigns as shareholder votes are collected to oust the CEO or the management team.

Real-World Example

While he may not have been directly labeled a Mad Hatter, Dov Charney, the founder of American Apparel, exhibited many of the traits they are known for. After 25 years as CEO of the company, he was ousted by the board of directors in 2014 after years of allegations of sexual misconduct, poor judgment, and bad decisions.

After he was fired, the company filed for Chapter 11 bankruptcy in October 2015, emerged from reorganization in January 2016, and filed for Chapter 11 a second time in November 2016. The company's intellectual property is owned by Gildan Activewear and its clothes are still available for sale online.

Charney is now running a company called Los Angeles Apparel, which he founded.

Where Did the Phrase "Mad as a Hatter" Come From?

Lewis Carroll's Alice's Adventures in Wonderland features a character named "The Hatter" that acts in bizarre and strange ways, eventually becoming known as "The Mad Hatter" in popular culture. The phrase itself, however, relates to hatters (people who made hats) in the 18th and 19th centuries and used mercury nitrate to turn animal furs into felt. The constant and long exposure to mercury caused those working with it to exhibit speech problems, tremors, and hallucinations.

What Makes a Bad CEO?

There are a variety of traits that make a bad CEO. These can include micro-managing, paranoia, poor vision, inability to execute the company's strategy, hiring the wrong people, not understanding the financial side of a business, being stubborn, and not seeking advice.

What Can Happen If a Firm Is Poorly Managed?

The worst possible outcome for a firm if it is poorly managed is that it will cease operations, close down, and have to let go of all its employees. Poorly managed firms can also cause significant amounts of stress, create faulty products, lose people money, and lose talented employees.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. U.S. Securities and Echange Commission "American Apparel Schedule 14F-1 - July 23, 2014."

  2. Gildan Brands. "American Apparel."

  3. The Business Journals. "American Apparel Emerges From Chapter 11 Bankruptcy."

  4. History. "Where Did the Phrase 'Mad as a Hatter' Come From?"

Take the Next Step to Invest
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Service
Name
Description