Bill George, former Medtronic CEO and my former colleague at Harvard Business School, has a very good post on his True North blog regarding the "seven lessons for leading in a crisis." I was particularly struck by Lesson #2:
Lesson #2: “No matter how bad things are, they will get worse.” Faced with bad news, many leaders cannot believe that things could really be so grim. Consequently, they try to convince the bearers of bad news that things aren’t so bad, and swift action can make problems go away.
This causes leaders to undershoot the mark in terms of corrective actions. As a consequence, they wind up taking a series of steps, none of which is powerful enough to correct the downward spiral. It is far better for leaders to anticipate the worst and get out of in front of it. If they restructure their cost base for the worst case, they can get their organization healthy for the turnaround when it comes and take advantage of opportunities that present themselves.
I would argue that such mistakes by a leader also lead to further difficulties down the road, because bearers of bad news may be reluctant to come forward in the future. Having had their concerns minimized and downplayed, such individuals may not choose to come forward with their concerns. As a result, problems may not surface as quickly in the future.