Empowerment, flexibility and agility are key elements of a successful organization in the digital economy. However, compliance and risk management are crucial as wel. Companies therefore need to reinvent and rebalance how they empower behavior of employees.
What if Ricardo Semler would have been Nick Leeson’s boss?
When I was working as a graduate in a large government organization, our department once had a strategic session with an organization consultant. It was an insightful session. Especially because of the provocative questions the consultant asked. One of these was: if you were not there, what would go wrong? Our boss also had to answer this question. He chopped, "Um, well, if I'm not there, all memos of my team will go through to my boss without my initials."
I found that statement funny and worrying at the same time. Funny because the added value of the department head to the organization was unconsciously dismissed by himself as poor. Worrying because he did not mean this to be funny at all. He really meant it. Apparently our boss saw the power that he exercised over us mainly as a means of control. He essentially wanted to restrain us. The higher levels then did the same. Quite a lot of people looked at proposed decisions, but often through similar lenses. In such a strongly hierarchically colored discourse, there was a permanent risk that draft decisions that were submitted to the management would be tailored primarily to the expected opinion of the same management. The decision was therefore not necessarily the best decision. It was the one most appreciated by the top, who in turn anticipated the appreciation of political leadership.
Is such a decision-making culture still present in organizations today? Generally speaking, the trend in recent years is for more room for maneuver and decision making lower in the organization. Consider, for example, companies for which innovation is crucial. If the balance of power is as it was in my organization at the time, it will soon be over with such a company. In contacts with clients, suppliers, start-ups, institutes, think tanks, communities, partners, its employees must be able to be fast, agile and effective. The people who work with the outside world must have a substantial mandate for this. Empowering the edges of the organization is key. Ricardo Semler is perhaps the most well-known evangelist of the empowered organization that he shaped in his Semco venture.
Yet, similar to teams who are governed by a command and control discourse, empowered teams can go wrong too. They also run the risk of poor or downright wrong decisions. Very different risks than in a hierarchical decision-making culture, but just as well with a lot of impact. This is a crucial area for innovative organizations in the private or public sector, as they will rarely see the immediate success of their decisions on what they spend their innovation budgets on. Investment decisions are therefore by definition tricky business in which the issues of the day weigh heavily. In innovation you cannot do well if you have the decision-making process from my former organization. Yet, you have to watch out that an investment decision too soon becomes something that is overshadowed by group think, which mainly feels good to people involved without thoroughly testing ideas, in an enthusiastic start-up atmosphere - and that your company will pay heavily for should the investment decision eventually turn out to have been wrong. Consider also the risk that insufficiently thoughtful decisions will be taken in the winning mood of past successes. As a highly successful wholesale banker at Barings, Nick Leeson was really empowered. Too much even. He ultimately destroyed the bank by taking too many risks.
What if Ricardo Semler controlled a wholesale bank and not Semco? What if he would have been Nick Leeson’s boss? Semco is originally a company in the manufacturing industry. This sector has specific compliance risks as well like safety, health and environment. Yet I wonder if Ricardo Semler would have been successful in an executive role in a bank in Europe. A lot of regulations have come into force in the EU since the banking crisis. Compliance has become a core function of banks. Would a leadership style purely focused on empowerment have been successful in this? Recently, bank executives have had to resign or at least have been discredited because their bank has failed to address issues more at the edges of the organization, such as LIBOR and money laundering issues. Would those directors have been personally involved in this? If so, would they have consciously thought: I pretend not to see this? In the automotive industry, to what extend would CxO’s of car companies who have collected heavy fines for fraud on diesel engine emissions have known about this? I really do not know. However, these directors were charged that a decision-making culture that made this possible had arisen under their rule.
The challenge we face is a new one. How do we combine these two extremes? Empowering the edges on the one hand and keeping control of risky behavior on the other, whilst as a CxO you want to give one coherent leadership message, not split messages. It is not one thing or another. It is both. This requires a cleverly thought-out mix of leadership interventions. It also provides a new challenge for leaders themselves: guiding the people in their organization to strike the right balance and know where the boundaries are. Being very agile where possible and very compliant where required.
Published in: Management & Consulting Quarterly, 2.2019