The Guru Is In

Entities Endure (for Worse)

By David A. Smith
May 5, 2025 6 min read

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“Bureaucracy defends the status quo long past the time when the quo has lost its status.” – Laurence J. Peter, author of The Peter Principle

As established in two previous columns, entities are continuously active ecosystem changers: first growing Entities Endure (for Better), then sustaining Entities Endure (for a Long While)…until what? Unlike us mortals, bodies corporate or politic have indefinite lifespan with stated commitments to ongoing value and beneficial impact. Yet, with time, organizational purpose can diffuse, dissipate, or disappear entirely. Whether inside or outside an organization, the symptoms of that entropy are easy to spot.

A.        From the inside looking out: Internal symptoms of decline.

1. Process gradually crowds out performance as a critical evaluation metric.   Young and fast-moving companies operate like unsupervised children or desperate pioneers: constantly experimenting, figuring out how to do something by doing it, often passing wisdom verbally instead of in writing. With the newfound equanimity of sustainability comes the desire to get ‘how we do things’ codified into processes. However understandable that worthy objective is, it rests on a false, unstated premise: We’ve got it under control, this environment will never change.
2. The board’s caution smothers the executive team’s ambitions. The founder’s initial board—the pre-sustainability board—is growth-oriented, risk-tolerant, and CEO-encouraging. But boards are committees, and boards have turnover. The platform attracts each incoming member with what it has accomplished, and each newcomer is usually more cautious than the board member whose place he or she has taken; often, the newbies have less domain expertise with growing entities and more with ‘mature’ entities. Bit by bit, the board becomes a committee of the cautious, concerned with protecting what has been achieved and avoiding loss, leading to companies that, like Abraham Lincoln’s generals, have got the ‘slows.’
3. The tyranny of budgets versus ‘permission to waste.’ Managers get rewarded for beating budgets, so managers propose budgets they are confident they can beat. That means eliminating anything experimental, because an experiment that isn’t a raging success can be viewed, in retrospect, as an obvious waste. Innovation, being selected against, atrophies.
4. The head loses touch with the body. The bigger the organization, the less those at the top understand their organization’s zeitgeist, and the less they realize how out of touch they are. I discovered this in 1975, having entered the workforce as a typist and been sent on a one-day temp job to a company (Boston Financial) where, for reasons that seemed inconsequential way back then, I wound up spending nine months as a typist/secretary dogsbody. Though visually like the executives and unlike the typing pool, the latter tolerated me, and the former seldom noticed me. In those few months, I learned an enormous amount about how the company really worked, its internal politics, its prospects, and what it valued. 
5. Too big to notice upstarts. Sometimes, breakthrough success yields market dominance so vast that there is no visible competition (Rome 360, Blackberry 2009). Leadership never credits that someone else may disrupt us as we disrupted the now-vanished dinosaurs until new technology (stirrups, iPhones) catches us completely by surprise, and all our invested infrastructure is now a stranded cost.
6. “La vertu, c’est moi.” The mission is no longer the mission; the mission is the company. The larger and older the organization, the more plaudits it accretes, and the easier it is for those who administer it to rationalize their self-regard. We are virtuous because what we do imperceptibly is replaced by, We are virtuous because of who we are. That leads quickly to its fallacious corollary: if we do it, then it is virtuous. When “what’s best for the customer or the beneficiary?” has given way to “what’s best for the company?” the slope has become too slippery.

B.        From the outside looking in: External symptoms of decline.

1. Girth expands faster than touch. As entities age, they tend to spread, and the larger their market share, the more they spread. The organogram grows new branches, and the headcount rises faster than the company’s most visible annual output metric (say, affordable homes produced, or new loans made). Even more simply, the percentage of staff (internal customers) rises, and that of line staff (external customers) correspondingly drops. In real estate companies, some of this can be ascribed to the expanding portfolio of services or asset management. In affordable housing, some can be blamed on increasing administrative or regulatory requirements (themselves a source of impact entropy) – but much of it cannot. An infallible indicator of staff overtaking the line as power holders happens when a company has to shrink, and it cuts more line people than staff.
2. “We really are that smart:” The emperor’s new VR headset. In the decade from 1975, when I first arrived at Boston Financial, through 1985, the firm’s volume and profitability grew yearly, even as our market share declined yearly. This led to a certain complacency within the shop that I once described to my partners as being “a bunch of guys? cycling downhill thinking we’re a Tour de France team.” (This went over … poorly.) Couple being Fooled by Randomness (in Nassim Nicholas Taleb’s memorable phrase) with the Dunning-Kruger effect (a term I did not make up), and one can readily explain Disney and Marvel or Lucasfilm, most pop stars, and any Kardashian you care to name.
3. The gerontocline appears and widens. A portmanteau word of my own invention, combining aging and visible dividing line, describes an organization with many long-tenured executives whose stars are dimming, an ongoing infusion of bright young talent, like meteor showers, and minimal leadership in the half-generation in between. Regularly attracting promising newcomers and losing them with equal regularity is a nearly infallible marker of entities that have stopped learning – and equally importantly, stopped un-learning by-now-obsolete working modes.
4. The best people’s ideas get squashed. Some entities that have lost their mojo nevertheless, by virtue of their stature, longevity, past successes, or luster, regularly attract great people, fired with commitment, imagination, and energy. Some rising stars unexpectedly ‘fire themselves’ by jumping to another entity (or starting one of their own). Others, with more loyalty or optimism, or less chutzpah, remain to ‘change the system from within.’ Yet despite their intentions, energy, and intra-entity skullduggery, the positive disrupters have to run a tortuous, opaque, and debilitating gauntlet of committees that demand proof of the brand-new and therefore unprovable. Few of their truly disruptive innovations survive into pilots, much less grow into growth generators.

Bad organizations beat good people; even moderately bad organizations can beat superlative people. That’s why the stars leave, when and how the gerontocline widens.

At some point, the decline has become irreversible. In the next column, I’ll wrap up this series by covering what happens when the streetcar trundles to the end of the line.