Lieven's Blog

What's on my mind...

The CEO's who weaken our economy

clipboard-with-pencil_16x16A few months after I started my first job as a young psychologist, I attended a presentation that was given by a “captain of industry”, a man in a top position of one of the largest organizations of the country. The event was organized by a society for organizational psychologist. The key note speaker described to the audience how the restructuring of the organization would take place and how everything was ready to be implemented. Even some first pilot projects had started recently and they looked very promising. Then (at least to me) something remarkable happened, the speaker announced that he would leave the organization soon. I remember that I found this strange, to me this was a leader who created a strategy on paper and now that the real implementation would start and the impact of his very strategy would be felt by all the employees and by the customers...he left. He received a big round of applause that night and I thought it was due to my inexperience that I misjudged the situation.

Now, about 20 years later and having worked with many leaders in various industries I’m convinced that it is dangerous for an organization when leaders are not made accountable (e.g. due to their absence) for their decisions.

The same is true for the way some of the bonus systems for CEO’s and other top executives are implemented these days. When they enter a company they get a bonus for joining. When they perform average they still get a substantial bonus and when they leave (or have to leave) the company, they also get a financial bonus. They just can’t loose anymore and that’s were the danger lays for the organization they lead (or have led) and our economy in general.

Accountability leads to better judgements

A bad bonus system and leaders who "leave the ship to early", makes that there is not really a relationship between the impact of the decisions they make and the reward they get for it. If their strategy turns out good or bad, they always receive their money or by then they are busy working in another organization and are on safe grounds. Research however suggests that if people are hold accountable for their decisions, they make better judgements.

It was Philip E. Tetlock, University of California, Berkeley, who emphasized as one of the first that there is an important link between judgement (and decision making) and accountability. Already in 1987, his research findings showed that when subjects were made accountable for their judgements on a personality prediction task, they performed much better than subjects who could do the same task, but stayed anonymous (and consequently could’t be made accountable). His findings suggest that:”It is not sufficient, for example, simply to hypothesize that the higher the stakes, the more likely people are to think in complex, effort-demanding ways and the more resistant people will be to well-known errors and biases.” Instead he concludes that: “Accountability motivates subjects to process social information in more analytic and complex ways that can substantially reduce judgmental biases (...) and overconfidence.”1

Accountability and Judgement Processes in a Personality Prediction Task. Philip E. Tetlock and Jae Il Kim. Journal of Personality and Social Psychology, 1987, p. 707

A threat to every organization

An essential aspect in strategy is that it is not something that exists in the controlled conditions of a laboratory. Strategy exists in the real life, in a changing market with competitors, obstacles and economic tendencies. Therefore an effective leader must be able to adapt his strategy to the circumstances when necessary and in this way ensures the competitive power of his organization. If however a leader is not around anymore to see how his strategy interacts with reality and is not able to act when adaptation is needed, then the worst case is that he leaves the next generation of leaders in his company with a dysfunctional strategy. If your business is in a highly competitive and dynamic industry (and almost all business are these days), the presence of a dysfunctional strategy could mean a serious waste of time, money and resources and it could threat the very existence of an organization.

Being a leader and becoming a strategist

On a personal level, leaders who mainly design strategies on paper and don't really experience the impact it has on the market, on their employees and on the stakeholders in general, miss an essential learning experience. Strategies have a life cycle, from conception over execution to success or failure. Depending on the size of the organization and on the characteristics of the strategy, a strategies' life cycle usually takes several years to even more than a decade before we can appreciate its real impact. Designing and executing strategy is a skill that, just like any other skill, has to be learned. So learning through mistakes and successes is essential for leaders to become real strategists.

It's not about the bonuses, its about a certain type of leaders

When you know that a particular company is loosing money, received financial support from the government (tax payers), is one of the players that caused the financial crisis, had to layoff hundreds of people and has currently employees that are mainly demotivated and disoriented because of the constant changes and crises, then a bonus of more than a million Euro for the CEO who leaves the organization after just three years doesn’t feel right.

Bonus systems are one of the drivers of our capitalistic system. People who contribute more to the success of an organization are able to earn more than those who do not (yet) contribute as much. As long as bonus systems function in an ethical correct manner, I’m fine with it. However people who receive extraordinary bonuses without really contributing in an “extraordinary” way to the success of an organization, make that the bonus system itself gets under pressure.

Recently a top manager in Belgium was criticized because he received a very substantial bonus. At about the same time his current organization was closing one business unit that lost its competitiveness and people had to be laid off. These two facts were linked in such a way that it weakened the position of the top manager. If however the critics would have looked carefully at the career of that particular leader, they would have learned that during the last decades, he has contributed consistently and significantly to the success of several important companies including the one he is leading now.

We shouldn’t get rid of the bonus systems and I think that we shouldn’t criticize managers that receive (substantial) bonuses when they deserve it, instead we should get rid of leaders who create unethical bonus systems and we shouldn’t accept as a society that leaders receive unethical bonuses. A leader has an impact on the economy, on the communities in which they operate and last but not least on the families that depend on the income of the employees who work for them, so irresponsible behavior is not acceptable. Corporate social responsibility starts here.

People in top positions versus top people

The leaders who can't loose anymore, weaken our economy and endanger the prosperity of our communities. Poor management, lack of accountability and greed are an age old recipe for disaster. For me these criteria differentiate between people in top positions and real top people.

Especially in times of crisis, we need leaders, in business and in government, who want to be made accountable for their decisions. It’s the kind of leaders who are driven by the will to succeed and the will to create a better future for their organization or country.

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