Want to Be Successful? Keep It Real. Executives who have lost touch with reality have sunk many once-thriving businesses.

When John Stumpf appeared before Congress to explain why Wells Fargo had to fire 5,300 employees over a five-year period for creating more than 2 million fake accounts, the bank's long-time chief executive emphatically denied that the misdeeds were a systemic part of the company culture.

And yet, a recent internal investigation concluded that the widespread fraud at one of the nation's biggest banks was indeed the result of a toxic corporate culture maniacally focused on achieving overzealous sales goals.

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The report blamed retail banking head Carrie Tolstedt for downplaying the extent of the problem. It also characterized Stumpf as an isolated CEO who avoided conflict and looked the other way, which explains how the man got it so wrong when he was grilled on Capitol Hill. He genuinely believed that it was all just a series of isolated instances.

Crazy as that sounds, it appears to be true. Having run corporate communications for several public companies, I've coached countless executives. In my observation, Stumpf's testimony was genuine. He was not trying to cover anything up. He wasn't trying to fool anyone. He had already fooled himself.

The question is, how does an otherwise smart and highly accomplished business leader end up pulling the wool over his own eyes like that? More important, can that sort of thing happen to you? And if so, how do you avoid such an insidious problem?

Basically, it comes down to human psychology. A mechanism known as compartmentalization allows us to ignore information we simply don't want to know. It's how we somehow manage to perform well at tasks that terrify us. It's also how surgeons perform gory operations without being freaked out by what they're doing.

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We all compartmentalize, to some extent, but it can be a slippery slope. Sometimes, we can't stop ourselves from sliding down into the great abyss known as delusion. It's way more common than you'd think. I've seen dozens of executives and business leaders of once-storied companies succumb to the allure of self-delusion.

When Steve Jobs announced the original iPhone at Macworld 2007, the co-CEOs of smartphone incumbent BlackBerry reacted with disbelief. They mocked Apple's breakthrough, its multi-touch display, web browser and apps like music and maps. They were in denial. It took years for them to come around, but by then, BlackBerry's market share and market capitalization were decimated.

If I asked you who invented digital photography, you'd probably say Sony, Canon or Olympia. Actually, Kodak built the world's first digital camera in 1975. But instead of commercializing the breakthrough, the company sat on it for decades for fear of cannibalizing its lucrative film business. That's how Kodak gave up the market it once dominated and ended up in Chapter 11 bankruptcy.

I used to run marketing for a company that competed with Intel. Our engineers designed a microprocessor that challenged the chip giant's best, but PC makers like Dell and HP wouldn't buy it, fearing that users had come to expect the ubiquitous Intel Inside logo. Overcoming that barrier was going to be extremely difficult.

Related: BlackBerry's Smartphone Market Share Has Reached 0 Percent

A sane strategy would have been to steeply undercut Intel's prices, buy market share and prove the product was a safe bet. In time, end users would have gotten used to PCs with alternative processors. If we continued to innovate and executive, we eventually could have raised prices. That would have been the smart thing to do.

What did our CEO do? He actually priced our chips $1 higher than Intel's. Oh yes he did.

What was his logic? To this day, I haven't a clue. But that was the first sign that the man had lost touch with reality. After several other strategic disasters that nearly bankrupted the company, the board finally fired his sorry butt. We recovered, and were ultimately acquired for $650 million.

There are probably dozens of reasons why businesses bite the dust, but if you look deep enough into the demise of any failed company, you will usually find a dysfunctional leader who chose to believe what he wanted to believe and ignore facts that were staring him right in the face.

How do you avoid that fate? Don't lie to yourself. Don't give into magical thinking. Deal with reality. Stay grounded. That's all there is to it.