Category Archives: Podcast

Mystery Solved: The Economic Crisis Caused by Weakness and Stupidity

Since 2007 we have all witnessed – indeed felt – the worst worldwide economic downturn and financial crisis of the past 75 years. As if consumed by a pyroclastic flow rushing down the slopes of an erupting volcano, great American industrial and financial icons have been overwhelmed and incinerated. Millions have lost jobs, credit has been frozen, home values decimated and futures put in question.

For decades to come, politicians, economists and historians will be dissecting, analyzing and researching the causes for this economic calamity. Any number of esoteric, inter-related, complicated and analytical reasons will be offered to explain the cause and effect of the economic disintegration.

But, you don’t have to wait that long for the real explanation. I have a much simpler theory to explain the economic problems we have encountered. It is as insidious as it is omnipresent in our lives. We all know what it is and have all experienced it. It is hard to resist and easy to succumb to. It is “peer pressure.”

I know there are those who will claim that blaming peer pressure for the economic collapse is too simplistic to have credibility, but I beg to differ. The reason why peer pressure is so insidious and powerful is because it seems so safe and simple. Peer pressure tugs at the very core of humanity. We all want to belong and not be left behind. We all want to be accepted and feel we are “in” with the in-crowd. And let’s be honest, many of us succumb to the coercive nature of peer pressure because we are followers, not leaders. The power of peer pressure is emboldened by the comforting but false premise that if everyone is doing it, it must be okay. It is not okay, but unfortunately most do not learn this simple lesson until it is too late.

It was peer pressure that caused the banker to make loans that should not be made. It was peer pressure that caused the insurance executive to take risks they knew should not be taken. It was peer pressure that caused the investment community (and investors) to move from investing to gambling with their funds (and the funds of others). It was peer pressure that caused otherwise honest business executives to become criminals. It was peer pressure (okay, some call it “keeping up with the Joneses”) that caused individuals to buy homes they could not afford and take on debt they could not repay. It was peer pressure that caused real estate investors to become real estate flippers. The sad fact is that if it were not for succumbing to peer pressure and the mob mentality that comes with it, the economic catastrophe would have been averted.

Peer Pressure Starts Early

The homogenizing pressure to be like others starts almost as soon as we are able to recognize that we have peers in this world. You see kids who dress alike, talk alike, eat the same food and smoke the same (whatever) because there’s peer pressure to be “part of the crowd.”

Yet, there is clearly no “socially redeeming value” in following the herd mentality of mediocrity. The only value that can come from peer pressure is to achieve a complete leveling effect for those who fall prey. Imposing peer group pressure simply makes everyone act, talk, think and be the same as if we were the semi-moron dwarf Epsilons of Huxley’s Brave New World.

Nor does the inefficiency and repression caused by peer pressure rules stop once we reach adulthood. In fact, the further we progress in our career the stronger peer pressure becomes. As we take our first job and work our way up the corporate ladder, the influence of peer pressure becomes even more entrenched than that we encountered as children. Surprisingly, in the business world, the concept of peer group pressure goes beyond the individual and even applies to the company itself.

For many companies, peer group comparison becomes the thread that weaves through the entire fabric of business management, planning and measurement. This management mentality could be referred to as “suicide by imitation.” Yet you will find this philosophy being taught at Harvard Business School, Stanford, Wharton and many other “leading” business colleges. In fact, the fastest growing segment of the consulting industry promulgates “peer group comparison” as a leading management tool to measure and judge how well we are doing in business.

(Speaking of peer pressure, get a load of the note I just received from the folks who are sponsoring the fifth annual West Coast Board Committee Peer Exchange. It will be held at the Hyatt Regency La Jolla in San Diego in March. It’s bad enough that we have such a thing as peer pressure; it’s worse when we have whole conventions dedicated to learning how to add more of this insanity to our business lives. Here’s a copy of my email my invite. P.S. No Press Allowed!).

The result of such endless and idiotic comparisons is to foster a despicable uniformity in the marketplace that often leads to the death of many businesses. Everyone looks the same, acts the same, and does the same. Businesses become a “herd of crowds” and no one knows whether the herd or the crowd is doing the right thing or the wrong thing because everyone is doing the same thing.

Be Your One and Only Peer

Peer group comparisons are now more prevalent than poppy fields in Afghanistan. Pick an industry – any industry – and you’ll find some trade group or analyst that has generated reams of comparative data to make peer group comparisons.

It’s always good to know what your competition is doing, but that’s so you can beat their brains out – not for judging the effectiveness of your performance. Trying to determine what you should be doing by shadowing what other companies are doing is a bad idea. Instead, we should measure our accomplishments against our potential.

The key is to create your own peer pressure by constantly measuring the improvement over what you have done in the past. Are you getting better at what you do each year? Measure your business against increasing productivity, selling more goods, answering more of your customer’s product needs with fairly-priced goods and services they can use.

Forget what others are doing. Real leaders resist peer group pressure by asking: Are we better off and performing today better than we did last year? Are we closer to achieving our objectives at the end of they year then at the beginning of the year?

Is this too simple or too easy? No, it’s the type of peer pressure that can’t be manipulated and is just the right kind of peer pressure the ethical leader uses to motivate himself and his followers. It is a leadership philosophy that says, “We have met the competition and the competition is us!”

The real leader has one objective when it comes to peer pressure: he wants to be the peer pressure against which others are forced to measure themselves.

The Moral of the Story is . . .

If we want to be in control of our lives and achieve our potential we need to understand that the easiest and yet the hardest thing is to resist the entanglements and risks that come with peer pressure. To do that means keeping your own counsel. The ethical leader is a congenital bad listener when it comes to comparing his business, department or division, to others. If you have studied and understand the market, considered the right and wrong of actions, if you have put all the major players in your business scenario on a parallel course, then the only thing that can cause your failure is submission to peer group pressure.

The strong leader is able to resist peer group pressure because he seeks to create an environment that recognizes the right thing to do and then consistently does the right thing. The ethical leader has the patience in himself and his followers to know that doing the right thing sometimes takes time to play out. The ethical leader compares the progress made with the potential and effort of the organization, not the illusions of peers. They know that if successful in such an endeavor they soon will be the comparison by which others compare themselves. The ethical leader defeats peer pressure by creating peer pressure for others.

Why Mark Cuban is Good For the NBA

PODCAST EPISODE #115: Despite all the drama, you never hear the players criticizing Dallas Mavericks owner Mark Cuban.

Make it Simple

PODCAST EPISODE #114: Like Warren Buffett says, if you need a calculator to make your decision, don’t buy it.