When Companies Copy the Herd

Picture a classroom test. The teacher asks a hard question. Rohan is unsure. He glances at the boy next to him, who has written a certain answer. Then he notices three more classmates have written the same answer. So Rohan thinks, "So many of them can't be wrong," and copies it too. Soon almost the whole class has written that answer. But here is the twist - the answer was wrong. The first boy simply guessed, and everyone else copied, not because it was right, but because everyone else was doing it.

Grown-ups running big companies do this too. Warren Buffett gave it a serious-sounding name: the institutional imperative. An "institution" here just means a big organisation, like a large company. And "imperative" means a strong pull to do something. Put together, it is the strong, invisible pull inside big companies to copy what other companies are doing - even when the thing they are copying is silly.

Buffett said this surprised him early in his career. He expected that clever, honest, hard-working bosses would always make sensible choices. Instead he saw that even smart managers, in good companies, would make foolish moves simply because rival companies were making them, or because everyone in the room was nodding along, or because doing something looked better than sitting still. This study is about seeing that copying pull clearly - because as a reader of businesses, one of the most useful things you can spot is a management that follows the herd instead of thinking for itself.

Companies are run by people, and people hate to stand alone. It feels safe to do what everyone else is doing. If a boss copies the crowd and it goes wrong, he can shrug and say, "Well, everyone else did the same." But if he thinks for himself, does something different, and it goes wrong, everyone blames him. So there is a strong, quiet pull to just follow along.

Buffett noticed a few ways this copying pull shows up. First, imitation: if a rival company opens ten new fancy showrooms, our boss feels he must open ten too, even if his own business does not need them - just because the rival did it. Second, staying busy to look good: bosses often feel they must always be doing something big - buying another company, launching something new - because sitting quietly feels like doing nothing, and doing nothing looks bad, even when sitting still is the wisest choice. Third, everyone agreeing: when all the senior people in a meeting nod at a plan, it becomes very hard for anyone to be the odd one who says, "Wait, this is a bad idea." So a weak plan sails through, unopposed.

The key thing Buffett wanted you to understand is startling: these are not stupid or dishonest people. They are clever, decent managers. And yet the pull of the herd makes even good managers do dumb things - not through wickedness, but through imitation and going along with the crowd. As a reader of a business, this gives you a sharp thing to watch. When a company makes a big move, ask a simple question: did the managers do this because they thought hard and it truly makes sense for their business - or did they do it because everyone else in their industry was doing it? The second kind of move is the warning sign.

illustrative Imagine a town with several snack-makers. One of them, Kavi Foods, notices that a big rival has spent a fortune opening a shiny chain of cafés, and everyone is praising the rival as "bold" and "modern." The bosses at Kavi Foods feel nervous sitting still. In their meeting, one senior person suggests, "Should we not open cafés too? Everyone is doing it." Heads nod around the table. Nobody wants to be the doubter. So Kavi Foods spends ₹50 crore opening its own café chain - not because its customers were asking for cafés, and not because it studied whether the numbers made sense, but simply because the rival did it and the room agreed. That is the institutional imperative in action.

Now look at Sunrise Stores in the same town. Its bosses feel the same nervous pull. But they stop and ask the plain question: do our customers actually want this, and does it earn back the money it costs? They study it honestly, and the answer is no - cafés do not suit their kind of business. So they quietly do nothing, and endure looking "boring" while everyone praises the café-openers. Notice that the lesson is not a promise about which company will make more money - the fashion might even work out for a while. The lesson is about how the decision was made. Kavi Foods copied the herd without thinking; Sunrise Stores thought for itself. A careful reader watches for exactly that difference, because a management that decides by copying will keep copying, right up to the day the whole herd walks off a cliff together.

Copying is not always wrong. Sometimes the rest of the industry is doing a thing because it genuinely is a good idea, and a company should indeed follow. If a smart new safety practice spreads across an industry, a company that copies it is being sensible, not sheepish. The warning is about copying without thinking, not about ever agreeing with others. The real question is always whether the managers actually reasoned it through.

Being different is not the same as being wise. Just as blindly following the herd is foolish, blindly doing the opposite of the herd - being contrary just to look clever or bold - is also foolish. A company that ignores every sensible practice merely to stand out can hurt itself just as badly. Independent thinking means thinking, not stubbornly rebelling.

You usually cannot see inside the meeting. From outside, you often cannot know why the managers made a move - whether they thought hard or just copied. You are reading clues, not facts. A big move that suspiciously matches a whole wave of rivals doing the same thing is a hint worth noticing, but it is not proof of thoughtless copying. Stay humble about what you truly know.

Even you can be part of the herd. The most important trap: this pull to copy works on you too, as a reader. When you see everyone praising a "bold" move, you may feel the same nervousness the managers felt and start believing the crowd. Spotting the herd in others is easier than resisting it in yourself.

In India, business fashions spread fast, and you can watch this idea play out in the newspapers. Sometimes every company in an industry rushes into the same new trend at the same time - all opening the same kind of stores, all chasing the same shiny new thing - because each one is copying the others and nobody wants to be left behind. Some of these waves work out, and many quietly fizzle after the excitement fades. The pattern of the herd moving together is the thing to notice.

When you read about a company's big decisions, let this idea add one gentle question to your mind: is this management thinking for itself, or just following the crowd? You will not always be able to tell - you cannot sit in their meetings. But you can notice when a company's big moves suspiciously match whatever every rival happens to be doing that year, versus a company that calmly makes its own choices and is willing to look "boring" when boring is right. This idea needs no special maths and no insider knowledge. It only asks you to remember the classroom, where the whole class copied one wrong answer - and to prize the rare manager, and the rare reader, who is willing to think alone.

• Ask why they did it. When a company makes a big move, ask: did they reason it out for their own business, or copy what every rival was doing?
• Watch for herd waves. When a whole industry rushes into the same trend at once, notice it - some of that is thinking, but much of it is copying.
• Beware the "must stay busy" move. Managers who make big splashy moves just to look active, when sitting still would be wiser, are following the imperative.
• Value the boss who says no. A management willing to look "boring" and skip a fashion, after honest study, often shows the independent thinking you want.
• Do not mix up different with wise. Going against the herd just to seem clever is as foolish as blindly following it. Look for real reasoning, either way.
• Check yourself, too. The pull to copy the crowd works on you as a reader. Notice when you are believing something only because everyone else does.