The world is rife with bad managers. That's one focus of this site.
Just as it is good to lead by example, it's bad to mislead by example.
Currently, there's a great bad management story in the news regarding the Attorney General for the United States, Alberto Gonzales, and his handling of the dismissal of eight Federal Attorneys General (note: this is not a political rant).
In a nutshell, it appears that Mr. Gonzales may have discharged qualified employees because they failed a values litmus test (that's my summary). That is, they were not enough in lock-step with the big boss to satisfy the big boss or one of his advisers.
There are several notable management weaknesses that are highlighted here:
Loyalty is a great quality. Combined with sycophantism and mode-matching, however, you basically get what's happening in D.C. now: a manager who fires qualified, performing individuals because they (the manager) cannot act independently, cannot stand up to the boss (or worse, other members of the boss's staff), and are driven primarily to please the boss without regard to the greater organizational consequences.
(ask yourself: how many of you would be fine with firing someone working for you who, in general, was doing a fine job just because the boss's pet staff member wanted them gone?)
Clearly, you have to please your boss or you're toast. But as a skilled manager, you also have to walk that fine line and balance the needs your staff, the needs of the organization and the needs of your boss.
There's a recent book, Team of Rivals: The Political Genius of Abraham Lincoln, by Doris Kearns Goodwin, the basic premise of which is that the Lincoln administration was made that much stronger by the inclusion of cabinet members who disagreed - sometimes vehemently - with Lincoln.
Conclusions: Effective and successful organizations need to allow dissent in the ranks; managers must be allowed to 'manage' (why else were they put in that role?) Loyalty-based hiring/placement is guaranteed to build a weak organization.