• When a company bases its decision making on the Highest Paid Person’s Opinion, the HiPPO is born
• Research shows that deferring to the most senior, highest paid individuals can hinder decision-making, stifle innovation, impact employee capability and crush start ups
• Businesses benefit from taking a more collaborative, less hierarchical approach, improving performance and staff wellbeing

In 2000, video rental behemoth Blockbuster hammered the first nail into its own coffin by rejecting the opportunity to buy a significant share in the fledgeling mail-order film rental company Netflix. 

According to Netflix’s co-founder and original CEO Marc Randolph in his book “That Will Never Work“, which details the shaky launch of the now $493bn company, he and fellow co-founder Reed Hastings were practically laughed out to the room when they offered Blockbuster’s CEO John Antioco the opportunity to buy 49% of the company for $50m. 

The rejection, is widely agreed in most business circles to be one of the worst business decisions on record.  

Just ten years later, Blockbuster was filing for bankruptcy whilst Netflix, which had evolved its mail-order service to a digital streaming platform, had a customer base in the millions, was signing deals to be embedded into the user interfaces of games consoles and smart TVs the world over, and was making its first steps into producing its own TV content. The Emmy award winning Orange Is The New Black and giants such as House of Cards hit our screens just a few short years later.

Antioco’s tenure at Blockbuster might have become the cautionary tale that execs whisper to each other when it comes to keeping a close eye on your competition and moving with the times, but it’s possible this legacy has been rather unfairly earned. 

What is perhaps lesser known is that after that fateful meeting with Netflix, Antioco made his own moves to revolutionise Blockbuster’s business model. Noticing the digital shift in the rental market, Antioco led the charge to build Blockbuster’s Total Access service – a digital subscription that could be a contender to Netflix’s swiftly growing presence in the market.  

What’s more, he was succeeding. By 2006 Blockbuster’s digital subscriber base was growing more rapidly than Netflix’s, positioning Goliath to easily squash David under his boot. But in 2007 Antioco had left the company and Blockbuster’s digital development stalled.  

The HiPPO effect

The reason he left, as noted in a paper by Harvard Law, was due to disagreements with board members, notably billionaire investor Carl Icahn, over continuing to support Blockbuster’s online business expansion. 

The rest is history.  

Antioco wasn’t a victim of his own ignorance after all. Indeed, when Netflix made their pitch, the company was in dismal shape – a shaky start-up haemorrhaging money in stark contrast to Blockbuster’s seemingly bulletproof business model, and all too easy to say no to. Then, when consumer behaviour shifted to embrace digital media, Antioco did too. At the time of Total Access’ launch, a reviewer noted it being comparable to Netflix in terms of cost and the catalogue of films available, but that its service standards, access and subscriber flexibilities were far superior.   

So, despite arguably being the most promising means of ensuring Blockbuster’s future, why was Total Access ditched? It turns out it has less to do with Antioco, or even Netflix, and more to do with HiPPOs. Blockbuster may well have gone bust by investing too much in the conservation of a particularly dangerous species. 

We’re not talking about the rotund, leathery, dangerous-yet-cartoonishly-cute mammals found in the heart of Africa’s wetlands (or the local zoo) here. Coined by Dutch business collective Corporate Rebels, in business terms, when a company bases its decision making on the Highest Paid Person’s Opinion, the HiPPO is born. A clever acronym that also nods to disastrous consequences. 

A more recent example than the now defunct blockbuster (RIP) is perhaps the case of the Volkswagen emissions scandal – a result of a poor corporate culture that enabled top execs within the company to knowingly approve the installation of software that allowed its vehicles to cheat standard emissions testing in order to make short terms financial gains. The scheme backfired catastrophically when the deception was uncovered, resulting in billions of dollars worth of fines and lawsuits to navigate – not to mention plummeting sales and a badly battered reputation.

The HiPPO might be admirable from a distance, but it’s intimidating up close. When one starts throwing its weight around in the boardroom, it can cause catastrophic damage.  

It’s not size that counts

It’s a theory well-grounded in academia too. Countless studies from the leading minds at business schools around the world all back up that reality that, when too much deference is paid to power and status rather than to the issue at hand, the company loses out. 

Research undertaken by faculty at the Rotterdam School of Management Erasmus University explored how status impacted innovation efforts within organisations, finding that whilst senior members of a team might provide some powerful advantages in getting projects off the ground, that advantage can be short-lived if lower-status but better informed team-members are unable to take some control. 

Paying too much deference to the person at the top can hinder a team from maximising the opportunities presented to them. Every project member must be able to acts as a “champion” for their innovation, regardless of their status, in order for it to not only succeed but to provide the greatest return. Organisations, they advise, must be strategic in managing social dynamics so that status does not take precedence over strategy. 

Can a HiPPO kill a start-up?

With a penchant for trampling innovation, it’s no surprise that the HiPPO is a particular problem when it comes to entrepreneurship – killing off many a fledgeling start up. Research from Harvard Business School identified a dilemma in the growth stage of a venture, which often forced founders to make a choice between control and success. 

Professor Noam Wasserman’s study found that those founders who were willing to give up more equity to attract a co-founder, more staff or more investment often built more valuable companies as a result. Often this process – and the path to success – also meant replacing the founder with a business-savvy CEO. 

In contrast, where founders refused to relinquish their control and consider additional voices in their growth strategies, the start-up was more likely to fail. The study notes that finders can choose between being rich verses being the king of a company. Rare indeed is it for a founder to balance both.  

Muddy waters

Hippos in the wild are known for wanting to keep their waters murky, and HiPPOs in business are no different. Research from Alliance Manchester Business School and Penn State University finds that high powered CEOs are more likely to push for opacity in their organisations – keeping information vague in order to best protect their own interests, or even hide poor performance.  

Highly paid, powerful CEOs, the researchers note, are likely to make decisions driven by their own opinion, which as well as being self-serving can lead to “extreme outcomes” for companies. Of course, sometimes the outcome is positive and provides a solid pay-off, but often it is not, making a company more volatile as it hits peaks and troughs. Where results are unfavourable or performance dips, high powered CEOs are able to hide these realities by simply not sharing information. 

Rising CEO pay, the researchers note, has been a socio-economic concern in many areas. With companies under increasing scrutiny to keep their practices transparent and remain accountable, there is more than one reason for power to be reined in. 

Those CEOs who can leave their egos at the door and set up opportunities for group decision-making, in contrast, can share their opinions, but there is a greater chance of any potentially damaging ideas to be dissected, revised or removed. 

Reasoning with the beast

Dynamics matter – particularly at board level when faced with strategic decision-making scenarios. A study led by Bayes Business School found that the atmosphere of a boardroom can hold a unignorable influence on how business decisions are made. 

For example, a shared sense of curiosity around the table helped people to share their ideas and perspectives, leading to fruitful idea generation, whereas a pensive atmosphere made people guarded in their statements. And atmospheres deemed to be tense or dismissive made people argumentative, unable to agree on a way forward.  

To avoid the HiPPO going on the rampage, staff must feel psychologically safe in voicing their views, and even their objections in everyday business scenarios.  

Research conducted by Harvard Business School’s Amy Edmonson found that when staff feel they cannot speak up to their high-powered peers, they are less likely to offer their opinions for fear of rebuke. 

For companies grappling with innovation, establishing trust amongst all staff, regardless of rank, is absolutely vital. The study found that those staff who were part of teams deemed psychologically safe were the most successful when it came to implementing new projects, and their performance collectively improved.  

Generating a sense of safety, of course, comes down to leadership. Organisational goals must be set and responsibilities made clear, but the study advises leaders to make a conscious effort to remain open to input from other team members about how those goals can be reached or even modified to meet emerging challenges.  

Whilst, Edmonson notes, establishing such a positive and supportive organisational culture cannot fully mitigate the anxiety and uncertainty that accompanies launching a new product or targeting a new customer base, it does help ensure a leader stays in control and can extract the best value from their teams. As a result, everybody wins. 

The era of the PIG

There is power that comes from taking a quieter approach. Traits such as humility and staying humble have been widely proven to bring out the best in teams, and in companies as a result. CEOs do not need to know everything, nor should they. By admitting errors, and areas where their knowledge is limited, leaders can open the door to bringing in wider, greater expertise. Not only do better decisions get made and profits increase, but leaders might just learn a little something too. Seeing leadership as a role which uplifts and supports others, rather than dictating to them, has also been proven to be an asset when it comes to fresh thinking, problem-solving and employee commitment and engagement. 

Animal analogies have long been used to describe the realities of professional life for a long time. Think worker bees or ants pooling their individual strength to diligently – perhaps mindlessly – work as a team for a greater cause. Wolves too are often used in business comparisons especially when describing competitive team scenarios, with members of the pack working in strategic collaboration with each other to bring down their prey. HiPPOs might be a lesser-known addition to this already rich vocabulary, but maybe there’s room for one more… 

Instead of aspiring to protect the HiPPO, leaders should look to emmulate another type of portly creature.  

The pig, for example, is the epitome of humble capability. Routinely under-estimated in their intelligence, team players, mild-mannered but unafraid to be bullish when needed, and a good nose for sniffing out opportunities not to mention the determination to fulfil them. 

So, PIG – Professional, Intelligent, Giving? I think it has a ring to it. 

By, Kerry Ruffle

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