Investing has many problems, and with each era, new ones arise, and others fade. According to Peter Atwater, one of today’s problems is the cult of personality. He writes in the Financial Times:
With all the attention on Sam Bankman-Fried and the crypto collapse du jour, it feels as if the crowd is missing the big picture.
If we step back and look at the major collapses of organisations over the past five years, they are different from other meltdowns. When the dot.com and housing market bubbles burst, what we witnessed was the failure of institutions that then resulted in a subsequent crisis of confidence in their leaders.
Enron’s demise took down Ken Lay and Jeffrey Skilling, while WorldCom’s failure upended Bernie Ebbers. In 2008, banking failures led to the ousting of bank chief executives. We witnessed a “Lehman moment” rather than a “Fuld finale”.
But in this cycle, what we are seeing is the downfall of supersized dream salesmen — a collection of Harold Hills right out of the 1960s film The Music Man — whose personal collapses are taking institutions down with them. (Think Adam Neumann, Markus Braun, Trevor Milton, Lex Greensill, Bill Hwang, Do Kwon, and now Bankman-Fried.)
In every case, attention turned first to the outlandish promises and audacious oversteps of a single individual and then to the perilous financial consequences for their organisations. It was the failings of a bold name atop the marquee that closed the entire show.
In an era awash with “move fast and break things” business strategies and social media influencers, I suppose our fascination with disruptive C-suite storytellers shouldn’t be all that surprising. Today’s technology and free-flowing capital access has enabled individuals to become huge stars like never before.
With that supersized overnight success, though, came a collection of shortcomings that are only now being exposed.
First, these individuals tend to govern without the usual checks and balances. Whether through highly concentrated shareholdings or share-rights, presumed genius or outright aggression, they call all the shots.
Second, blind loyalty was all but a requirement — from employees, capital providers and customers. Pushback was non-existent and doubters were ridiculed for their disbelief.
Third, these individuals were surrounded by loyal and adoring fans. Rock musicians never had it this good.
On the surface, this all looked unstoppable. The founders and chief executives seemed to wield power in the style of autocrats or cult leaders.
The challenge with cults, though, is that they foster environments of compliance, not confidence. Only the leader has certainty and control. Everyone else is powerless. Moreover, whatever certainty exists results from obedience to that individual.
Read more here.