The Linden Principle

Towards the end of last year the BBC aired a documentary on the Great Banking Crisis of 2008, which featured various bankers, government ministers and officials recounting the emergency meetings where the decision was taken to nationalise large parts of the British financial system. The Royal Bank of Scotland, once one of the most successful institutions in the world, had, by late 2008, been reduced by an ill-advised expansion strategy to a virtual basket-case, and was only hours away from total collapse. Faced with the prospect of millions of citizens waking up to find their accounts frozen, the government called the RBS management into the Treasury to finalise the details of the deal that would eventually see the state acquire 84% of the bank. During the course of this meeting, officials realised that Fred Goodwin, RBS Chief Executive, seemed to have only the flimsiest grasp of the trouble his bank was in, believing that a modest cash injection would be enough to stabilise things. Goodwin retired shortly afterwards, with a generous pension, leaving the taxpayers to contemplate the lesson that, as Chancellor Alistair Darling ruefully noted, when it comes to running banks it’s a good idea to hire people who know what they are doing.

We tend to assume that, when someone reaches a position of responsibility, this must be as a result of some rational process that evaluated their competence for it. However we are often faced with evidence, like the poor decision making that led to the financial crisis, that contradicts this, and suggests that other, unknown factors must play a part in the selection of our leaders.

Laurence J. Peter, who died in 1990, is best known as the author of the Peter Principle, which states that “In a Hierarchy Every Employee Tends to Rise to His Level of Incompetence.” Workers who are good at their jobs are promoted until they are in a job they can’t do, at which point they get stuck. Since big organisations tend to find it difficult to get rid of people, eventually every position will be filled by someone who is incompetent to manage it.

I was thinking of all this when I read about Linden Lab’s latest marketing wheeze; an advertising campaign that seeks to dispel a supposed “Fat Naked Guy in a Basement Anti-Second Life Meme” by showcasing the attractive people behind selected avatars. This seems to me to be wrong-headed on so many levels that it does raise doubts about how well the Lab management understand their own product and what makes it attractive to their paying customers. One only has to google “Linden Lab incompetence” to come up with plenty other examples of Lab strategy that have proved unpopular with the resident community.

On the other hand, Mark Kingdon has an MBA from the Wharton School of Business, and years of experience in senior management, whereas I am an embittered loser with a blog (though, I must point out, reasonably slim, fully clothed, and currently resident above ground). Who would you trust to run a successful company?