From the March 2014 issue of Entrepreneur

Principalities are great for stamp collectors. They are less appealing when they exist inside your company, thanks to the manager or staffer who has built his or her own private Luxembourg.

It's a phenomenon known in the management trade as "empire building": an urge to create fiefdoms with pumped-up staffs and budgets that match the inflated ego of the perpetrator--and it can sabotage your team, bottom line and worse.

"It can kill the company," says Mark Faust, a growth and turnaround specialist at Cincinnati-based Echelon Management International and author of Growth or Bust! "You're lucky if it's just reducing the potential of the company by 20 or 30 percent, but it could be a lot more. It is one of the greatest constraining factors on U.S. business."

Empire builders don't care about that. Their goal is to increase their personal power and stature by amassing departments, information and head count. They measure their worth by the heft and gleam of their domain. It's a little like the peacock strutting his Technicolor tail for the females, says Art Markman, a psychologist at the University of Texas at Austin who runs the Human Dimensions of Organizations program. "In this case, it's not a mating signal, but a power signal to the organization that you're somebody to be reckoned with," he says.

Thirty years ago an empire builder might have been applauded for chutzpah. But times have changed. In recent years there has been growing scrutiny on the dangers of empire building; management experts have come to see it as a hidden toxin at the root of many business dysfunctions, leading to excess spending, anemic growth and turf wars.

In today's lean landscape, there is little tolerance for rogue hoarders and bloat. Further, leadership philosophies are evolving from the rigid command-and-control structure to a collaborative model. Power-hungry alphas are seen as undermining the collective good and hindering employee engagement.

Tron Jordheim, chief marketing officer for Columbia, Mo.-based StorageMart, sees empire building as a tendency of new, status-seeking middle managers who want to create organizations around them. The danger is that "you pump up expenses too high and too soon," he says. "Payroll and administrative costs start rising, but you don't see the revenues. Worthwhile projects get scuttled this way."

Follow the Bickering

Empire builders are skillful manipulators who build up their holdings over time--maneuvering for a project here, adding budget there. "It can happen to anyone," says Robert Quinn, faculty director of the Center for Positive Organizations at the University of Michigan's Ross School of Business. "Usually, they're very technically competent at something, and the person takes advantage of that. It creates friction in the organization, but because of the power base, it's felt that no one can touch the person."

It's "too big to fail," the personnel version. A classic case is the IT chief, keeper of the sacred code, or a sales honcho who is so good at what he does that no one dares challenge him. Empire builders are not hard to find: Just follow the bottlenecks and the bickering.

Secret agendas, diverted resources, walling off one part of the company from another--empire building can smother performance and destroy rapport and trust. In addition to territoriality, the behavior breeds resentment and disengagement, fueling interpersonal conflict and division. "Companies are human networks," Quinn says. "Everyone suffers when there's no longer a sense of teamwork or organization."

It's on this cultural level where the rot of empire building really takes hold, souring relationships and creating internal rivalries that take time and energy away from the battle against the real competitors in the market.

"Empire building is the enemy within," says Dana Ardi, founder of New York-based Corporate Anthropology Advisors and author of The Fall of the Alphas. "They're not operating for the greater good." She argues that the behavior is out of step in the social era of collaboration and connection. "We want a competitive spirit, but we don't want people competing against each other. You want to be in a culture that rewards collaborative behavior and the overarching goals of the company."

Research on human motivation over the past couple of decades has shown that the command-and-control model of leadership is flawed. As University of Rochester psychology professor Edward L. Deci has detailed in Why We Do What We Do and a host of landmark studies, monetary incentives and rigid control don't drive employees. To get the best out of your team, you have to allow them to participate and be more autonomous, and you have to make sure they understand how they are contributing to the company mission.

Empire building is the antithesis of that. "The question isn't how much can I achieve; it's what can I contribute," says Rick Wartzman, executive director of the Drucker Institute in Claremont, Calif. "That's one of the hallmarks of a leader. What's the mission of the company? Your objective should be in line with the objective of the company."

The Territorial Urge

The drive to extend domain and, thus, status has been playing out for millennia in the sweepstakes for survival of the fittest. The more territory and resources, the more power. Those who can dominate gain further access to additional valuable resources.

But this competition is no longer about physical survival; rather, it's about social and psychological survival. "Today we fight over the survival tools of information, relationships, status or visibility. That's what people need to succeed," says Annette Simmons, founder of Shreveport, La.-based Group Process Consulting and author of Territorial Games. In fact, Simmons says, empire building is simply another term for protecting territory. They both come from the same primitive place in our brains, the emotional hub of the ancient limbic system. That means empire-building stratagems like keeping an employee from working on someone else's project so they can work on yours fall into the reflex category. The typical empire builder is oblivious to what he or she is doing.

Some empire builders are responding to the signals the organization is sending as to what constitutes power in the organization. Others are driven by contingent self-esteem, a belief that self-worth comes from external markers such as money, recognition, size of office/budget/staff. It's a futile game; external approval can't make a person happy, because it's based on what others think. Further, it's fickle, and it can put a person on a hedonic treadmill where they can never catch up with the next set of wants.

"If they get the corner office, now they need the suite," Markman says. "They have five people working under them, now they need 10. That isn't going to end."

The prime mover for most empire builders, it turns out, is the opposite of what they want to project: weakness. As with the braggart, behind the brash behavior is anxiety and a low self-esteem that has to be padded constantly. "If you're not telling them how great they are, they're in an anxious state that they're not great," Markman adds. "All of this is a way of trying to keep the anxiety at bay. 'I must be important; I've got a huge staff.'"

When personal worth is based on the external domain, there's a constant fear that someone's going to take it all away. "When you start seeing behaviors that reflect someone needing to control everything--a lack of integrity, backstabbing, information hoarding, empire building for the sake of empire building--it is often a reflection of someone feeling threatened," says Nicole Lipkin, a business psychologist in Philadelphia and author of What Keeps Leaders Up at Night. "The real or imagined threat is often a perceived threat to one's self-esteem or sense of self."

That sense of self needs more strokes if it is part of a narcissistic personality, which fuels the empire-building psychology. Unhealthy narcissists are in it for the glory and praise; they need a steady stream of both to feel powerful. Because their self-construct is weak, they detest criticism and can't stand for anyone else to get credit for anything good that happens--which makes them extremely hard to work for and sows dissension in the ranks. They lack a crucial ingredient of leadership: empathy. They can turn on anyone at any time, stretch the truth, hide bad data, duplicate staff without a whiff of concern about the effect on budget and rationalize it all as necessary for getting the job done.

No wonder colleagues break out the champagne when these self-obsessed roadblocks are relieved of their duties. Quinn of the Ross School of Business recalls when an empire builder at a company where he worked--an executive secretary who used her access and institutional knowledge to build her fiefdom--was fired. "Her last day, as she walked down the hallway, heads popped out to watch her, and after she left everyone sang, 'The wicked witch is dead.'"

Reigning In Imperial Designs

It's not only power and insecurity that cause imperial behavior. Organizations can enable it, too, by signaling that amassing resources is the route to respect and power. Empires rise within companies because "either the organization is not clear on what its objectives are, or you have people who are not fit for leadership," says the Drucker Institute's Wartzman. The solution lies in communicating the goals of the organization clearly and calling out offenders. Take the time to ask questions and listen to staff for problems and conflicts. What's standing in the way of the mission and performance?

Identify the black hole where resources and engagement are vanishing, then confront the person responsible with the evidence: outsized staff, perks, ballooning turf, conflict with others. The response will usually be, "I'm just doing my job."

"The truth is the person is not doing their job," Quinn says. "Part of the job is embracing the common good. When I'm destroying that, I'm not doing my job. It has enormous dollar implications. When your team breaks down, and the climate becomes toxic, you're losing things that impact the bottom line."

The empire builder has to understand that his or her behavior is a detriment to the company, which means bad job performance--something that can wake up the insecure very quickly. The key point, Wartzman says: "You need to be focused on creating value for customers, not yourself. It's backwards."

Jordheim of StorageMart has had the empire conversation with various managers over the years. He tries to dig out the reasons behindthe behavior. "Do you really need this person, or are you just having fun building out?" he asks someone who's beefing up their staff. When he thinks the person is power-tripping, he'll say, "You're building too much. You have to pull back."

Performance reviews are a good place to make the case that being a leader requires the effective use of resources, not the Imelda Marcos school of warehousing. Another approach is to show why it's in the person's long-term interest to rein in the potentate behavior.

Markman suggests taking a trip forward in time with the empire builder and having the person review their life from the point of view of their retirement years. What most people want, he says, is "to feel like they were respected, that they moved their organization forward, that they innovated. There are very few people who look back on their career and say that what [they] wanted was to have a very big office."