The Peter Principle in the Age of M&A: When Leadership Growth Doesn’t Scale

I was first introduced to the concept of the Peter Principle by my mentor and then-Managing Director at Blue Chip, Brian Meredith. We were reviewing our own leadership structure at the time, and his guidance helped me recognise how capability must evolve as businesses scale and how failing to adapt can quietly stall progress.

In 1969, Dr. Laurence J. Peter introduced a simple but powerful idea: "In a hierarchy, every employee tends to rise to their level of incompetence." More than 50 years later, the Peter Principle feels more relevant than ever especially in the age of aggressive business growth through mergers and acquisitions. As companies scale rapidly, their leadership is often left playing catch-up. Skills that once drove success in a smaller, more focused business may not translate to the demands of a complex, multi-entity operation. And when leaders outgrow their capability without knowing it, the damage isn’t just personal, it’s organisational.

From Start-Up Hero to Structural Risk

Early-stage leaders often thrive on instinct, deep domain knowledge, and personal drive. They’re hands-on, decisive, and close to customers. But as a business grows particularly through M&A these qualities can become liabilities. Larger organisations require structure, scalable systems, cultural integration, and delegation. The skills needed to lead at scale are rarely the same as those that build a business from scratch.

When these leaders remain in place without adapting, or without support, they can unwittingly become blockers to progress. What once felt like strength becomes rigidity. Decision-making slows, communication frays, and teams lose direction.

M&A: A Stress Test for Leadership

Mergers and acquisitions accelerate this dynamic. Bringing together businesses with different processes, customer expectations, and internal cultures demands a new level of leadership maturity. It’s not just about operational execution it’s about integration strategy, change management, and long-term alignment.

In some cases, formerly well-integrated teams find themselves siloed under new leadership structures that don’t appreciate the regional, cultural, or technical nuances of the acquired business. Decision-making is centralised, and those with deep customer or operational knowledge are pushed aside. Over time, this can degrade service quality and erode customer satisfaction not through malice, but through misalignment and misplaced confidence.

In these environments, leaders need to move from doers to orchestrators. They must be comfortable with ambiguity, able to build bridges between teams, and mature enough to relinquish control where necessary. The Peter Principle reveals itself most clearly when leaders can’t make this leap.

When the Peter Principle Starts at the Top

In high-growth businesses particularly those undergoing rapid transformation via M&A the most dangerous leadership limitations often start at the very top. A CEO or founder who once steered a lean, nimble business may struggle to adapt when the environment demands cross-border integration, formal governance, and scalable operating models.

Modern leadership culture doesn’t always help. It’s not uncommon to see senior leaders bouncing between the message of the latest business book, applying surface-level change without the discipline to follow through. Strategy becomes a flavour of the month, not a sustained direction. Worse, if ego gets in the way, the kind of real, often uncomfortable self-reflection needed to evolve can be blocked entirely.

This is when leadership teams turn into echo chambers agreeing with themselves while the business silently stalls. For investors, especially in Private Equity, this presents a major risk: an executive team that looks credible on paper but is no longer fit for purpose at scale.

To make matters worse, there's a common pattern where senior leaders, reluctant to question their own role in underperformance, shift blame downward. Rather than acknowledging a failed strategy or leadership blind spots, they remove layers of middle management to signal action. It's a form of political self-preservation. As the saying goes, "turkeys don’t vote for Christmas" (or Thanksgiving) and in this case, leadership avoids accountability to protect their position, particularly when a future PE payout may depend on staying in their seat.

Beyond the Spreadsheets: Who’s Actually Leading?

In the TPM and infrastructure services space where we’ve advised many PE-backed firms it's easy to focus on the numbers: revenue growth, cost synergies, EBITDA uplift. But behind every spreadsheet is a set of people making thousands of daily decisions that either build value or quietly erode it.

The critical question isn’t just "what’s the return on this acquisition?"it’s "who will lead it, and are they capable of leading it at this scale and stage?"

Getting this wrong doesn’t just slow growth. It can actively reverse it killing integration momentum, undermining culture, and creating a revolving door of talent. Investors need to think carefully about who is influencing leadership strategy, and whether the people at the top are still the right people for the job.

Conclusion

The Peter Principle isn’t just about one person being out of their depth. In high-growth, PE-backed environments, it’s about recognising when entire leadership layers need to evolve or be replaced to meet the moment. Leadership isn’t static, and capability at one stage of growth doesn’t guarantee relevance at the next. The businesses that thrive through M&A aren’t just financially engineered they’re built on honest, self-aware, appropriately skilled leadership teams doing the right things, at the right time, with the right backing.

At Baby Blue, we regularly advise PE firms on the realities of scaling and integrating TPM and infrastructure service businesses. Lee and Chris bring decades of operational, technical, and commercial experience and provide first-hand insight into what works, what fails, and how to ensure leadership is truly fit for purpose at each stage of the investment journey.