The Peter Principle characterizes corporate promotions in that competent employees are frequently promoted until they reach their level of incompetence. This Principle applies in all circumstances but is particularly relevant to family businesses, where the Paternal Instep allows family members to be promoted several levels above his or her level of incompetence (R.I. Sutton in The Peter Principle, Collins Business edition, 2009). The situation created by this move can be devastating in that positions higher up within the company have greater influence on the success or failure of the company. A ship needs a rudder to steer.
The problem with the the Paternal Instep is further highlighted by Andrew Carnegie, “There are but three generations in America from shirt sleeves to shirt sleeves,” meaning “The first generation builds the business, the second makes it a success, and the third wrecks it.”
While I was at Creative Memories the founder’s son promoted his daughter to run the company that was originally started by his father. The daughter had previously worked as a consultant and had no experience actually running an organization similar to Creative Memories. She was ill-prepared for the turmoil that Creative Memories faced, and the company soon entered bankruptcy. In doing so, Creative Memories fulfilled both the Peter Principle and Andrew Carnegie’s prophesy.