Lights Out: Pride, Delusion, and the Fall of General Electric is a cautionary tale of how GE's leaders blinded themselves and nearly everyone else to their own shortcomings until it was too late to do anything about them. "If you're in any kind of leadership role--whether at a company, a nonprofit, or somewhere else--there's a lot you can learn here," Bill Gates writes. He's put Lights Out at the top of his list of summer reading recommendations.

Every spring, Gates releases a list of books he recommends for summer reading, along with a review of each book. This year, he postponed releasing his book list after the announcement of his coming divorce from Melinda French Gates dominated the headlines. Now the dust has settled a bit, and so he has published his list of books and reviews.

Lights Out sounds like a fascinating read, if a bit of an uncomfortable one for Gates, both as a former big-company CEO and as someone who knows and likes some of the leaders who came in for the harshest criticism. He notes that GE was an early customer of Microsoft. "That gave us a huge boost in the market, because GE was such a bellwether company."

Gates writes that he'd wondered for years how what was once the biggest and most powerful company in the world could have shrunk to a fraction of its former size and gotten itself dumped from the Dow Jones Industrial Average. Lights Out, written by Wall Street Journal reporters Thomas Gryta and Ted Mann, provides some answers, he writes. Those answers contain lessons that every leader should learn.

1. Don't fixate on short-term profits. 

"One of GE's greatest apparent strengths was actually one of its greatest weaknesses," Gates observes. That is, GE always met or exceeded Wall Street analysts' predictions for its quarterly or annual profits, "making its numbers" in financial-speak. 

This has always seemed like a somewhat arbitrary measurement to me. A company can have great profits but if those profits are less than analysts expected, they'll post negative commentary and its share price will plummet. Conversely, a company can have huge losses, but if those losses are smaller than analysts expected, its share price will soar. Lights Out reveals the devious methods GE used to make its numbers, for example by "selling" an asset such as a train to an accommodating bank and then buying it back after the quarter was over and its financial reports were filed.

Chasing short-term profits in this way led to systemic weaknesses at GE. Meantime, it's interesting to note that both Amazon and Tesla filed many quarterly reports that disappointed analysts. Their stock prices suffered accordingly. But, in time, Amazon became a behemoth that employs about a million people in the U.S. alone, and Tesla is worth more than Toyota, Volkswagen, and General Motors combined. Jeff Bezos and Elon Musk are the two richest people in the world. It seems safe to say that tying yourself in knots to satisfy Wall Street's expectations is not necessarily an effective strategy for success.

2. Make sure you're hearing the bad news.

"In many companies, bad news travels very slowly, while good news travels fast," Gates writes. He adds that he used to fight this trend at Microsoft--for instance if someone informed him that the company had won a software design competition, he'd respond by asking how many other competitions it had lost.

You can see why some people didn't think Gates was the most encouraging of bosses back then. But the underlying message is an essential one: Don't motivate people to tell you good news but not bad news, because you might not learn about a problem until it's too late to fix it. Managers at GE didn't have much incentive to share worrisome information with its top leadership, so they didn't.

3. Whatever you do, don't drink your own Kool-Aid.

Investors bought into a grand myth about GE--that its leaders were so smart and well trained in the company's legendary management techniques that they could run every kind of operation better than anyone else. The problem is, GE's leaders seemed to buy into it too. And so they did try to run almost every kind of operation, including film-making, insurance, finance, and nuclear power plants, as well manufacturing things like light bulbs and appliances.

But running this sprawling conglomerate well was close to impossible, Gates writes. "Those generalists often didn't understand the specifics of the industries they had to manage and couldn't navigate trends." This was especially true of GE Capital, the company's lending business, which brought in big profits but also carried huge risks that GE's leadership couldn't always see.

If investors, customers, and partners believe you're smarter than everyone else, that's a good thing. But it can get you in big trouble if you start believing it too.