Robbing “Peter” to Pay Paul

For those of you like me who regularly get invitations to join AARP, you may be old enough to remember the hoopla surrounding the release of the 1970 blockbuster, “The Peter Principle: Why Things Always Go Wrong.”

Long before we began regurgitating such nauseating corporate buzzwords such as “win, win” or “thinking outside the box,” there was the Peter Principle. Named after the author, Laurence J. Peter, the Peter Principle is a management theory that suggests people will keep getting promoted until they reach their own level or position of incompetence.

Now anyone who has logged more than two weeks with a large or even midsized company has surely witnessed evidence of that, even if they were born long after the book’s unveiling. How many times have you asked yourself, “How has (add any name here) managed to get to be (add specific title)?" when you realize that he or she is not within three area codes of competence. 

There are too many examples to cite in the space allotted here, but one of my all-time favorites of the Peter Principle is one Roger Smith, who for nine years served as chairman of  auto giant General Motors.

His tenure was marked by a series of chronic missteps including, but not limited to, installing Chevrolet engines in the higher class Oldsmobile models, as well as forging unwise (and unprofitable) alliances with foreign automakers,  and, as a result GM’s market share fell 11 points during his “reign of error.”

One quarter GM North America lost $4 billion (no that’s not a misprint) and I remember thinking at the time that I could install my then 5-year old daughter as chair and she would be hard-pressed to lose any more than $4 billion.

CNBC bestowed Smith with the dubious distinction of being one of the worst American CEOs of all time. But although GM had enough of him, apparently other corporate giants had not – soft drink and snack food conglomerate PepsiCo for one, who invited him to become a member of its board for a mind-numbing  $1 million per year.

Since chairman was as high as you could go at GM, one wonders why the Peter Principle didn’t kick in for him much sooner.

But I digress.

I dredge up this embarrassing corporate saga because during a visit to a CPA firm last month one of the partners had referenced a competitor firm claiming several of their senior partners were living proof of the Peter Principle and  predicted that none of them would last a month in a tighter run practice.

I laughed because: A: I knew at least two of the partners  in question, and B: I had not thought about the Peter Principle for close to a decade and was impressed that its message was still etched upon others’ memories.

I also thought about how if the Peter Principle was alive and well in one firm, I had little doubt it was embedded in others as well. And the sad part is that one disciple of the Peter Principle probably has or will prevent countless more qualified people from coming on board  - or if they do, their stay will likely be short lived, when they see the level of competence or lack thereof.

It may be time for firm owners to dust off that long forgotten book and take a hard look at their firm and determine if there are any people (of authority or equity) who fit that description and are incredibly drawing a healthy paycheck for doing it.

Because you’ll hardly have to think outside the box to see it’s not a win-win situation.