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On leadership debt

·2 mins

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 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 inflicts 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 recognise that the organisation 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

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 restructing 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.

Saadat Qadri
Saadat Qadri
I’ve been fortunate to work with and learn from data, product and growth leaders at companies such as InVision, CB Insights, Breather, Karbon, FreshBooks, Wealthsimple, among others. I love getting my hands dirty in helping build infrastructure to power insights and growth. I’ve helped build data teams from scratch, and I’m learning how to a better manager every day.