Don’t Let Peer Pressure Haunt Your Business

One of the most pernicious problems affecting business managers is, and always has been, the deleterious effect of peer pressure. Anyone who’s ever managed a business, a department or his job, knows what I’m talking about.

Peer pressure is that never-ending force exerted by others to encourage a person to change their attitude and behavior to conform to that of the group.

We’ve experienced generous helpings of this pressure as teenagers when, for better for worse, we’re cajoled into “going along with the crowd.” And while that might be an unavoidable accident of growing up, you should have outgrown that need to cave in to the group when you become an adult.

I was reminded of that fact while reading an excellent dissertation of the mortgage loan meltdown by Seattle Times business reporter Drew DeSilver. More about that in a moment.

Copycat Business Management Seems to be the Rule

The “accepted” rule of business seems to be that the goal is to keep up with the other guy, the other businesses in your industry. Not only should you keep up, but it’s also perfectly acceptable (even smart) to copy what the others are doing in hopes of achieving a result similar to theirs.

I have long argued that chasing or responding to the actions of peer group companies is a disastrous management position. Yet, this “lemming-to-the-sea” behavior is rampant in many industries. DeSilver’s aptly points out in his article that a “monkey-do-as-monkey-see” management style is at least partially responsible for the egregious financial woes of Washington Mutual if not the entire home loan industry.

Headquartered in Seattle. WaMu is one of the nation’s biggest mortgage lenders and consumer bankers According to DeSilver, “billions of dollars in tarnished debt sit festering on WaMu’s books. The stock is down 71 percent over the past year, thousands of employees have been laid off, and just last week WaMu effectively sold half of itself to an investor group at a bargain-basement price.”

DeSilver claims that interviews with former employees and Wall Street analysts, as well as reviews of internal documents and the company’s financial history, suggest WaMu’s crisis is largely of its own making.

“As lenders such as Countrywide and New Century Financial reported ever higher profits by generating and securitizing loans, analysts say, WaMu felt pressured to keep up.” And their solution, of course, was to join the subprime fracas with their per group so that they wouldn’t be left behind.

The result? They wrote billions of dollars worth of higher-risk loans including short-term adjustable-rate mortgages, especially so-called “option ARMs”; home-equity loans and lines of credit; and subprime loans.

Well by now, everybody knows what peer pressure delivered to Washington Mutual and dozens of other major players in the mortgage loan market who joined the subprime melee because they, too, wanted to “keep up” with what others were doing.

How to Avoid Peer Pressure

In my book, Cheat To Win, I devoted an entire chapter to avoid peer pressure, noting that “when you start moving with the herd everybody suffers. That kind of stupidity will bring down whole industries.” That prediction became eerily correct for the home loan industry.

This sort of peer pressure has a lesson for all business managers. Simply put, my rule is this: Ignore peer pressure and look for a better way. Be aware, but don’t compare your business to others. Always find a better, more creative way to best the competition. Don’t try to beat them at their own game.

If others businesses in your industry are, for example, cutting prices and you feel you must “keep up” and respond to this onerous pressure but cutting prices too—don’t. When they engaging in business practices akin to cooking the books or writing high-risk loans, don’t. Find a better way.

Yes, that’s easier said than done. But when you’re in business, any business, the easiest and yet the hardest thing is to do the right thing. And that means keeping your own counsel. Be a congenital bad listener when it comes to comparing your business to others. If you have studied your market, considered what is right and what is wrong, if you have put all the major players in your business scenario on a parallel course, the easiest thing is to do the right thing – not the same thing.

The way to cheat on the peer pressure rule is not to chase the competition, but rather to create the competition. Make other people compete against you as opposed to you competing against them.

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