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.
- 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. At the tea-table, Alice meets the Mad 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.
Example of a Mad Hatter
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. As of 2021, American Apparel was owned by a Canadian company that planned to reintroduce the brand.
Charney is now running a company called Los Angeles Apparel, which he founded.