Leadersh[ee]p: does hierarchical leadership qualify as a Ponzi scheme?

Preface

Each time I approach individuals here on LinkedIn my intention is to initiate a conversation that provides value. On a frequent basis I find myself inspired to learn myself by taking a new perspective.

The other day, a senior manager told me ?I believe in self-organization as a guiding leadership principle“. As I confronted him that lifting self-organization to a perfection level ultimately would render himself obsolete, he responded ?in reality, there are sheep and there are shepherds. Combined they work smoothly just like a Ponzi scheme“.

Wow. That’s a statement ??

I became curious to investigate how that comparison between hierarchical leadership and the Ponzi scheme is adding up altogether.

The two archetypes in a hierarchical organization

In a hierarchical organization, the dynamics can often be distilled into two archetypal roles: the sheep and the shepherd. These roles represent the fundamental psychological and structural elements that govern interactions and influence within the organization.

The "sheep" are individuals who typically follow directions without significant resistance, appreciating the clear structure and security that the hierarchy provides. They rely on the leadership to guide the direction of their work and make major decisions, preferring to operate within well-defined parameters rather than seeking to challenge or redefine them.

Conversely, the "shepherds" are those in leadership positions who take responsibility for not only directing the sheep but also for the wellbeing and productivity of their teams. They make strategic decisions, guide the flock towards organizational goals, and are expected to be proactive in navigating challenges. These roles sustain the traditional hierarchical model by balancing the need for order and direction with the need for leadership and initiative.

Psychology of the sheep archetype

Probably there is a reason why the plural of a sheep is sheep. In fact, a herd of sheep act like a single sheep. They don’t identify as individuals. In contrast, with dogs or cats you can identify a certain character.

For many humans, the role of the sheep is a comfortable one. In the context of a hierarchical organization, "sheep" are employees who prefer clear directives and guidance over the responsibility of making pivotal decisions. The predictability of their roles within a hierarchy provides a sense of security and stability. These individuals may derive satisfaction from completing tasks within defined parameters, without the anxiety of navigating the complexities of leadership. Hierarchical systems cater to this preference by delineating roles and responsibilities clearly, thus reducing the cognitive and emotional load on individuals who would rather follow than lead.

Psychology of the shepherd archetype

Conversely, the "shepherds" in organizations are those who are drawn to leadership roles. These individuals find satisfaction in directing others, making strategic decisions, and bearing the responsibility that comes with managing resources and people.

Hierarchies provide a clear path to leadership and power, often with visible and highly structured levels of progression. This not only feeds the ambition of potential leaders but also sets a clear framework within which they can aspire to rise. The structured nature of hierarchical organizations ensures that these individuals have opportunities to exercise control and influence, fulfilling their need to guide and direct.

Understanding the Ponzi scheme

A Ponzi scheme is a fraudulent investment scam that promises high financial returns or dividends not available through traditional investments. Instead of generating actual earnings through legitimate business activities, the money from new investors is used to pay purported returns to earlier investors, creating a flow of money that appears as profit to those investors. This scheme leads investors to believe that profits are coming from product sales or other means, when in fact they are coming from the influx of new investors.

The scheme is named after Charles Ponzi, who became infamous for using this fraudulent financing scheme in the early 20th century. A Ponzi scheme requires a constant flow of new money to sustain itself, as it relies on pulling in new investors to pay off the earlier ones. This is inherently unstable, and the scheme is destined to collapse because the earnings, if any, are less than the payments to investors.

Ponzi schemes often collapse on their own when the new investments stop — either because the promoter vanishes with the money or when it becomes difficult to recruit new investors. Alternatively, they may be exposed when investors try to cash out their winnings but the funds are not available.

Comparing hierarchical leadership with the Ponzi scheme

At first glance, hierarchical leadership and a Ponzi scheme seem to have little in common. However, on closer inspection, the operation of a strict hierarchy of power shows some intriguing parallels to a Ponzi scheme, especially in terms of sustainability and resource distribution.

Five indicators to identify hierarchical leadersh[ee]p as a Ponzi scheme

1. Dependence on constant growth

Like a Ponzi scheme that needs new investors to exist, hierarchically managed businesses are often dependent on constant growth. This growth is required to reward and justify the top levels of the hierarchy. Without growth, such structures can quickly become unstable, as resources flow from the bottom up, diminishing the base.

2. Concentration of power and resources

In a strict hierarchy, power and resources are concentrated at the top, similar to how funds in a Ponzi scheme are centralized with the scheme's operator. Employees on lower levels often receive only a fraction of the rewards and recognition granted to executives, even if their work is crucial to the company's success.

3. Short-term success orientation

Ponzi schemes are designed to generate high returns quickly to maintain the illusion of profitability. Similarly, hierarchically managed companies may tend to prioritize short-term goals over long-term sustainability. Emphasizing short-term successes can lead to the neglect of long-term strategies and the development of the entire company.

4. Fragility and risk

The inherent risk of a Ponzi scheme lies in its collapse once there are no new investors. Similarly, hierarchical businesses can become fragile if the lower levels of the hierarchy are not adequately supported or valued, leading to high turnover, low employee satisfaction, and ultimately a lack of innovation.

5. The illusion of stability

Ponzi schemes create an illusion of stability and security as long as new funds are flowing. Hierarchical businesses can also project a semblance of stability as long as the upper levels maintain their control and influence. However, this stability is often precarious and dependent on the continuous subordination and contribution of the lower levels.

Distributed leadership as an alternative

In today's fast-paced and innovative business world, the disadvantages of a strict hierarchy are becoming increasingly apparent. Companies that promote flexible, inclusive, and decentralized leadership models can often respond more agilely and are better equipped for sustainable growth. Generally speaking, it is important for businesses to rethink their structures to ensure that they promote not only short-term profits but also long-term viability and employee well-being.

Leadership models that go beyond the team level and offer an alternative to hierarchical leadership include Holacracy, Sociocracy and the Starfish Model. Being radical by nature, none of them are easily adoptable and rarely they are seriously considered as an alternative.

Scaled Intent Leadership

Scaled Intent Leadership is based on the idea, that the leader of an organization uses his own sense of integrity as a lever to drive the leadership culture throughout the organization.

As a Scaled Intent Executive you have performed deep inner work that led you to the acknowledgement that you can be both, a leader and a follower, a shepherd and a sheep. Not only are both archetypes two sides of the same game, they are both represented in yourself. In fact, any human being is naturally born with a sheep and a shepherd identity. It's only a matter of developing the role inside yourself. It's your choice.

Playing the game, rather than the role

The Scaled Intent Executive is determined to play the game, rather than any of the roles, sheep or shepherd. Understanding the leadersh[ee]p game allows you to watch your own emotions carefully and to align your inner stance as well as your actions accordingly. Enhancing your inner awareness will result not only in acknowledgement and credibility from your team, but ultimately unleash a higher level of productivity, successful transformation and employee happiness.

If you are interested to start playing the leadersh[ee]p game rather than being stuck in any of these roles, drop me a DM.

Conclusion

If this article opened up more questions than it answered, it has achieved it's purpose ??

Share your questions and take aways as a comment. ??

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