Financial advisers who ignore power struggles going on within their firms may be risking their business.
Researchers from the Stanford Graduate School of Business have shown that once people at a firm have power, they tend to prioritize their own missions and act to preserve their power, even acting aggressively if they feel threatened.
These “high-powered Napoleons” lash out and create conflicts within the organization as they fight to retain their position, according to Lindred Greer, assistant professor of organizational behavior at Stanford. The result can be firings and “outright failures,” she wrote in an article.
“At best, this is an enormous loss of potential for an organization relying on its most skilled and experienced employees,” Ms. Greer wrote. “Companies that ignore the power struggles eventually pay the price.”
Power struggles play out at advisory firms of all sizes, said Beverly Flaxington, principal at The Collaborative, which provides business advice to financial planning firms. Typically it occurs when someone is promoted who has successfully worked at a peer level with the colleagues he or she now oversees.
“There's a shift that often happens where they were colleagues and could collaborate, but it's almost as if they forget how to work with others,” Ms. Flaxington said. “It can be very debilitating.”
Individuals at the firm become more frustrated, complain that the adviser or president who promoted this person doesn't want to hear about the problem, and it becomes a much more negative culture, she said.
“People feel really stuck,” Ms. Flaxington said. “It's insidious and you end up with a bunch of really unhappy people.”
With advisers, it's often a situation where the firm grows and the best-performing adviser is elevated to be in charge of sales. But while trying to improve everyone's results, the adviser doesn't understand that not everyone has the same skills set that he or she does, Ms. Flaxington said.
These power concerns also can play out among those in the back office or operational side of things, as well as among those on the investment side, such as when one person who had been part of an investment committee becomes the firm's chief investment officer.
“All of a sudden they take a command-and-control perspective,” Ms. Flaxington said.
Firms looking to avoid the pitfalls of power struggles should have management teams with clear roles and responsibilities and should develop democratic decision-making processes such as agreeing by consensus, Ms. Greer wrote.
She also recommends providing conflict management training that can help managers recognize potential fights and show them how to address the underlying concerns.
“Recognizing which team members are engaged in a power struggle and resolving it quickly and respectfully is artistry possessed by a few great leaders,” Ms. Greer wrote.