Unfortunately, a large part of the daily work for senior managers is to deal with problems, and a part of that task includes figuring out what went wrong. The exercise sensitizes managers to the many decisions that cause issues to arise. And in this crucible, with the benefit of perfect hindsight, they learn to criticize.
I remember sitting in my Business School Classes (taught using the case method), and listening to student after student harshly criticizing the actions of the managers in the cases we studied. Heck, we had Jack Welch show up at the school, and the same thing happened face to face! For all the advantages of the case method, it does seem to set young budding managers along the path to becoming a Super-Critic.
The Super-Critic expects perfection, but more importantly, doesn't hesitate to find flaws with everything going on around him/her. They criticize how things were done, even if the outcome was generally good -- because, if they'd just been able to apply their piercing insight, it would have been better. Even if the Super-Critic learns to toss off compliments, they are given only on the most trivial of matters (nice tie, now on to the critique!). Or they learn to compliment in public and criticize in private -- but the compliments still sound hollow and contrived. This is the world of the Super-Critic, one of imperfection to be pointed out by his or her superior intellect. It is a world of sneerning at a job that should have undoubtedly been better done.
The impact on people in the organization is predictable. Avoidance is the principle reaction -- avoidance of contact with the Super-Critic. No contact means less exposure to the Super-Critic's caustic personality. There are still criticisms to offer -- which will make their way down through the chain of command. In the Super-Critic's company, the employee who hears the criticism must always wonder just how high up its origin was. In this environment, one often hears employees complain nothing is ever good enough, or the absence of criticism is the only compliment.
The Super-Critic fails by driving talent out of the organization, and breaking the drive to achieve in many of those who remain. When negative critique is all that is ever offered, regardless of effort, many employees will reduce their efforts to the minimum necessary to get by. The Super-Critic also inspires Mini-me's. A Super-Critic CEO will, as is true with many of the extreme leadership styles, inspire other managers in the organization to become critics as well. The leader will sometimes secretly admire the piercing insight of his subordinate who beats him or her to the critical observation.
The Super-Critic ultimately fails when the organization fails to perform. Boards are not equipped to discover and remove the Super-Critic solely because of his caustic impact. He or she fail because of a loss of talent and effort from the organization. In some companies, this can become evident quickly, but in others with strong established brand names and positions, it can take a very long time -- if it ever is separable from the daily impacts of a hundred other factors. The Super-Critic, in many cases, is there to stay for a long haul.