On Leadership Debt

If your company is gravitating from crisis to crisis, perhaps it’s a good time to think about what is happening at the leadership level.

There’s a term called management debt, that almost all companies accrue over time. People much smarter than me have already written about the hidden cost of management debt, but I think there’s another, more problematic form of debt that afflicts startups and companies at nascent stages of growth: leadership debt.

I define leadership debt as the debt accrued from ineffective decision making on all matters that affect employees and stakeholders internal to the company. In the way that technical debt is the debt accrued from allowing deficiencies of internal quality to pile up in an attempt to move faster, leadership debt is the result of making decisions with an emphasis on short term results, without taking into account the effect of decisions on employees and the company over longer time horizons.

Not surprisingly, leadership debt compounds exponentially. It may not seem like much of an issue at first, but the effects of this debt start to appear well after poor decisions are made.

How do you recognize that the organization you’re working for has accrued leadership debt? The obvious signal is poor employee retention, particularly executive departures. Other obvious but biased signals are Glassdoor reviews from exiting employees. But there are other hidden signals that point to accruing debt:

Decisions on the leadership team take forever
There is a deep lack of trust between founders and the rest of the leadership team
Founders operate with a finite mindset, thinking in quarters instead of generations

- Cross-functional initiatives repeatedly stall or fail despite adequate resources - Information becomes increasingly siloed, with knowledge hoarding rather than sharing - Middle managers start developing their own interpretations of company strategy, creating inconsistency - The company culture begins to fracture, with different teams operating by different values - Crisis management becomes the default operating mode rather than the exception

If you’re a founder, and these signs are obvious - it’s time to rethink the leadership structure at your company. This is the role that boards play at most public and private companies - they step in as adults to try and pay down the debt accrued, usually by restructuring the current leadership structure, and bringing in seasoned operators. We’ve seen this play out at Uber, and number of other Bay Area companies.

Much like other forms of debt - the servicing cost of leadership debt can quickly become insurmountable.

So how do you prevent leadership debt from accumulating in the first place?

Regular leadership retrospectives: Just as engineering teams perform retrospectives after sprints, leadership teams should regularly evaluate their decision-making processes and outcomes.
Diversity of thought: Leadership teams comprised of individuals with varied backgrounds and perspectives are more likely to identify potential long-term consequences of decisions.
Clear decision frameworks: Establish consistent frameworks that force consideration of long-term impacts alongside short-term gains.
Radical transparency: When leadership decisions and their rationales are transparent, the entire organization can provide feedback before debt accumulates.
Values-based decision making: Decisions that align with core company values tend to stand the test of time better than purely opportunistic ones.

The most effective companies don’t just manage leadership debt—they actively prevent it through intentional leadership practices that balance short-term needs with long-term organizational health.