<![CDATA[I recently had the good fortune to spend three weeks traveling around Britain and Ireland. One of the fun aspects of this trip was visiting many Georgian homes and businesses. The buildings, which dated from the mid-1700s to the mid-1800s, were built by owners who were very wealthy. The buildings were large, opulently decorated and had many servants. However, the owners all went bankrupt soon after building them.
I became interested in the factors that caused so much wealth to be so quickly dissipated and I kept coming back to the leadership of those families and businesses. There were two consistent factors:
- 1. Constant spending to maintain social status
- 2. Slow response to changes in the markets
I see many of these traits in businesses today. Just think about the amount of money that’s spent on perks for senior leadership. There is an odd circular argument about that. Many see the perks as substantiating that leaders are in fact leaders—why else would they be receiving perks?
So, leaders use their financial control to reward themselves to show they are important, even while their organizations are plummeting. This same idea holds true for Georgian gentry.
In one case, the master bedroom was on the ground floor of a home, next to the formal dining room so the hosts could show off their expensive four-poster bed during dinner. The perks prove that they were in the elite, which was worth more than sensible financial management. Ironically, in this case there’s a documented conversation between a financial advisor and the owner of the property that the owner was spending himself into poverty. The owner said something like, “but I am a gentleman and must spend like a gentleman.” When the owner died, all his land and property had to be sold off to pay his debts. Thus, leaving his widow and children impoverished. So much for appearances.
The other situation of interest was that much of this wealth was built on businesses that boomed for a while, but changed rapidly. For example, Waterford, Ireland (founded by Vikings in 900 AD and was the first town in the country) had many amazing buildings, all from previously successful businesses that had fallen into ruin.
In all cases a successful business (like coal and shipping) changed due to new technology and leaders who failed to respond. So, why didn’t these leaders respond?
An overwhelming number of leaders were spending most of their time wasting their money on social status and riding on past glories. Very little energy or innovation was occurring until it was far too late.
Think about all the industries that have faded out because of a similar complacency. The question for you and your organization is: Are you leading like a Georgian, courting future ruin? Or are you humble about your status and future prospects?]]>
About Dr. William Seidman