Peter Principle

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Peter Principle 

Hierarchies matter. We might hate them, but we can't ignore them. They are all around us, informal or formal. To some extent climbing up the hierarchy is essential fuel for almost every person. In some deeply human spiritual way, most of us prefer the view from the top. Or as a mentor of mine always told me:

"Mats, if you are not the lead dog, you won't like the view!"

We might, and hopefully, do have very different types of hierarchies in mind. In churches, in schools, in governments, in workplaces, and even in our minds. But despite the many forms they may take, they are still hierarchies. You’d be hard-pressed to name a single entity that didn’t adhere to some sort of hierarchical order. As humans, we are thirsty and hungry for acceptance, relevance, resonance, and most of all, a sense of purpose. Perhaps this newsletter is more about elevating ourselves in the hierarchy of information, rather than organization, but my writing and your reading are evidence of our curiosity and desire to better understand the complexities of life and a desire to contribute to continued human evolution and progress. And that is, of course, entirely a good thing. 

Today, I just want to focus on a singular aspect of hierarchies: organizational hierarchy. Who gets to sit on top? And how do we determine the skills, capabilities, and readiness for anyone to take that next step "up"? 

It obviously matters a great deal. I feel a lot of our current problems would have been avoided (or at least could have been managed a whole lot better) if many leaders in positions were better suited for the responsibilities they have. In the distant past, there were two primary ways of taking power. Through force, conquest, or battle—a violent demonstration of ability. And there were those born into their role, demonstrating no qualification but birthright, but were nonetheless trained for their role since their first breath. In this day in age, of course, we do things a bit differently.
 
Our political leaders only have one qualification, really. Winning an election. That’s it. And once they are in office, that keeps being their only objective—to win the next election. And they can, and many do, keep repeating that for a very long time (way too long for my taste hence my support of term limits).

Some would argue, and of course, in a strict democratic sense, they might be right, that winning an election in and of itself is the ultimate proof of having proved that you are the right person for the job. But when you look at that particular game, you quickly realize that it is filled with a myriad of distortions that make the simple relationship between skills and effectiveness very difficult to assess for any voter.

First, there is serious money involved in winning - did you earn or buy your votes? Second, things like gerrymandering – did you redraw your electorate map to enhance your chances? And lastly, attribution – which policies were you truly instrumental in bringing into reality, and what aspect of people’s lives did your work really and truly affect? 

But we can extend similar reasoning to all institutions. Government agencies are in many cases more important than the politicians governing them. What do we know about the qualifications of those running them? How did they get appointed? What about the large not-for-profits, research organizations, or local municipalities? 

So, how do we pick the right leader for a job? 

Fortunately, there is no one answer to that question. I say, fortunately, since if there was, I don’t think we’d like being human beings as much as we do. The beauty of life is in the unknown, the unexpected. Every human is slightly different. Every leadership task is different. Every time, era, nature of the challenge, and overall context is different. Therefore, there simply can’t be a formula to be applied to all situations.

I learned this many years ago from Dr. Martin Ingvar, Professor of Clinical Neurophysiology at Karolinska Institute in Stockholm. I consulted with Dr. Ingvar in my own leadership development program to better help us understand our brains. When he realized that I was really looking for the ONE answer to all of the human insight, he simply said (and I believe he was quoting the Physicist Emerson Pugh):

Mats, if the brain was so simple, we could understand it, we would be so simple, we still wouldn't. 

It was one of those aha! moments for me. It reminds me of the old man who desperately prays to find the keys to his future. When his prayers are answered he is told: I have bad news and good news. The bad news is that there are no keys. The good news is that the gates are left open!

So, we are left doing the best we can. And many, of course, are. When I am faced with leadership evaluations, promotions, or selections, I tend to focus mainly on 3 dimensions. 

First, what is the context? What is the nature of the challenge I am trying to solve? Is this challenge something I recognize from before (pattern recognition)? I particularly have learned to be extra sensitive to the degree of change involved. Is this an execution of an innovation problem primarily? The reason is that the leadership qualities needed to manage execution and innovation challenges are quite different. 

Second, culture. What type of culture do we have? What values and human qualities typically fit well within that culture? In what direction are we seeking to nudge or change our culture? Is the person I am considering fluent in the language of the culture they will lead? Again, depending on the level of change we are trying to initiate these considerations are significant. 

Third, attributions. The person we are considering. What do we know about them? How do we know that they truly did what their resume claims they did? Is the past truly the best predictor of the future? Some people are lucky and find themselves in the right place at the right time. You could land a job at a company that had 10 fantastic years of growth and success and rise within that organization. How much of that can be credited to your talents and skills as a leader? Difficult but important questions to consider. 

A very famous problem in leadership selection is called the Peter Principle. It basically states that in a hierarchical structure, people tend to be promoted up to their level of incompetence. And stay there. Meaning, that there is a ceiling for performance.

Just because someone is good at SOME things doesn't mean they will be good at OTHER things. 

I am reflecting on this just about every day. As an active investor, my job is basically about 3 things. First, finding great ideas that can build a better tomorrow. Second, allocating financial capital towards the ideas that can have the greatest impact (financially AND societally). Third, and by far the most difficult, making sure each of those ideas has the right talent to maximize their potential. The first two are reasonably straightforward. The latter is very, very difficult indeed. 

I have dedicated an enormous part of my own "free time" to try to better myself and my own understanding of identifying, assessing, and evaluating leaders. It's one of the areas in my life that I am constantly practicing. Daily. And it will probably never end. This is both the beauty and frustration of the Pugh quote above. We are never done. And to quote T.S. Eliot:

“We shall not cease from exploration
And the end of all our exploring
Will be to arrive where we started
And know the place for the first time.”

So there is much to learn. Getting better at putting aces in their places and making sure our most important institutions have the right leadership must be one of the most important tasks for all of us. Our current leadership contest seems to be more about who can intimidate the other side than who can build the teams, cultures, and followership necessary to actually move us to our desired future. 

I am sharing 3 pieces here if you want to go deeper. 

• First, is a very old BBC interview with Dr. Peter Lawrence where he describes how he came to frame the Peter Principle. You will enjoy it. It's only a few minutes and it will make sense to you. I promise. 
  

• Second, there is a fantastic new book out by Tyler Cowen and Daniel Gross called Talent. And I really enjoyed this podcast where Russ Roberts talks to Tyler about the book. I think what Tyler and Daniel point to is our need currently for more transformational leaders and why they typically are different from our more traditional view of talent. 

• For those interested in a more expanded view of my own talent philosophy, I recently discussed talent topics with two of my favorite Talent Detectives out there. First an interview with my friend Dave Ransom and then one with Nick Cromydas at Hunt Club.  Please check them both out and sign up for their insights if you want to stay on top of the field of talent. 

Have a great week!