Around a year ago, I was interviewed for a Sunday Times piece on accountability and it set me thinking again about the dilemma of finding the right balance of control and empowerment in an organization.
I have written extensively about the balance of control and trust and about how to decentralise decision making and empowerment in the past (most recently in my book “Making the Matrix Work”) but this dilemmas thrown into sharp relief by a number of incidents that happened at around the same time.
A client in the auto industry had responded to the “Conflict Minerals” legislation in the USA by centralizing all procurement decisions in the US, reducing discretion, flexibility and empowerment in their local regional operations. The legislation introduces steep fines for companies using a range of minerals that could come from areas where there is conflict (the same idea as “conflict diamonds”). However, the legislation is complex and the fines large, so it is too risky to let anyone but a specialist make the decision.
Another client organization discovered a mistake in the labelling of their products: they reported it themselves and put it right but were still fined millions of dollars. Now specialists must review and approve anything in this field.
Companies in financial services have had imposed on them centralized, top-down governance processes which review major decisions and mean that managers are spending large amounts of their time attending meetings of low relevance so that they can prove they exercised oversight. Decisions are delayed and revised.
As a CEO, I too need to protect my organization from these risks but at the same time I know that excessive centralisation will cause delay, additional cost and disempower people in my organisation. What do I do?
The UK scandal on horse meat making its way onto the supply chain, largely believed to be from criminal activity, is another example. We can micromanage the whole supply chain and DNA test every stage, batch and product – but this will be incredibly expensive.
Similarly Boeing was criticised for problems associated with a battery from a supplier and commentators blamed outsourcing to companies outside the USA
When we lose trust in a product, process, company or even a whole industry, the answer is always more regulation and control. Yet this degradation of autonomy and empowerment over time will have grave consequences for the performance of companies and the job satisfaction of people within them.
I am sure the public do not care if bankers, car company purchasing people and processed food manufacturers have satisfying jobs and feel empowered. They only want assurances of control but the reality is that more governance and rules has rarely delivered this. Central, rule oriented controls are an illusion unless we have the right values and trust within the organization too.
Unfortunately, these softer factors are less easy to quantify, and the politicians and legislators framing the response are often lawyers or have never run real businesses, so this is not on their agenda.
We are in an era of increasing control on most aspects of business and in regulatory cases we have no choice but to comply.This makes it increasingly important to create empowerment and trust where we can, and push back at unnecessary controls.
We must also expect as a society that there is a price to be paid for all this extra control, in monitoring costs, reduced innovation and less satisfying jobs. It may be tempting to pull back from complex supply chains, local decisions or working with external partners to reduce risk but this does not come for free. Let’s hope that the cost of the “cures” (if they work) is not worse than the cost of the disease.