| ILLUSION OF SUCCESS GETS IN WAY OF GOOD LEADERSHIP |
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Management Review Business Day 25 May 2009 Jonathan Yudelowitz MEASUREMENT-based performance management and results-based remuneration were supposed to drive a better form of capitalism by paying management for results and productivity, getting them to think for themselves, to identify with and act like owners, and avoid bureaucratic complacency. Instead, on Wall Street and in the City of London, it resulted in a kind of “socialism for the rich”, which cited bankers’ wealth as proof of success, but was the precursor to global meltdown. The consequences of failed judgment were sold off anonymously via collateralised debt obligations (CDOs) or hidden offshore through special purpose vehicles — reinforcing an illusion of success, inimical to real capitalism, partly because double-entry bookkeeping, which honestly keeps track of and reports on both assets and liabilities, was dumped. Modern performance appraisal reduces the multifaceted reality of work to ratings on scales of poor, indifferent and excellent. Those being appraised must be satisfied that the facts are seen in context, that he and the appraiser appreciate one another’s motives and agendas. If not, bias and resentment will surface in destructive gossip and rumour mills, aggravating negativity, exaggerating problems and destroying trust — eviscerating leadership. The irony of focusing only on results engenders an “end justifies the means” culture — compromising values and futures. Work becomes a “code to be cracked”, an examination or a game — focusing on external reward, instead of responsible acts based on one’s own sense of things. This contradicts the purpose of performance- based pay: getting executives to treat the business as if it were their own. The “false quantification” of recent performance management systems diverted attention from how good leadership should be practiced. Leaders were fooled into believing they could avoid the arduous process of working through relationships: listening, observing and experiencing people and circumstances, and articulating opinions and needs that affect others. Balanced scorecards and executive dashboards have not measured those human phenomena that precipitated or prevented the crisis. For instance, they’ve neither quantified or defined the contributions or qualities of the creators and enforcers of the banking regulations that prevented South African banks participating in the CDO swaps that led to the global economic meltdown. Nor have they been able to discern what, and when, unquantifiable choices made the Daimler- Chrysler or AOL-Time Warner merger fail, or to distinguish those from the successful BHP-Billiton merger. Some remuneration specialists argue that share price or phantom equivalents do ultimately reflect the non-measurable contributions — value systems, attitude and intentions. Of course human variables affect a business’s economic value, but are unlikely to have an impact on or be noticed within the artificial, arbitrary quarterly or annual time frames imposed by performance management systems. Besides, attempts to align owner and executive interests, in all but the simplest businesses, confuse roles. An owner’s concern is to ensure the sustainable economic growth of the business, which the executive leaders must achieve by trading off between market, staff and investor demands; their own individual interests and values; the strategy of the organisation and the competitive and unpredictable market. All this demands investing in the short term to create value in the long term, and vice versa. Extenuating contexts always make it difficult to measure individual performance discretely. Hence, feedback adds value only if the giver recognises the person’s specific reality and contribution, and acknowledges their unique circumstances — alongside the important “hard” measurable facts. Uncomfortable truths must be confronted — possible only through authentic, face-to-face interaction — so that a shared appreciation for the person’s value-add can be established. If shareholders and directors cannot give the benefit of the doubt to executives’ judgment, those executives must be replaced. Instead of being paid small salaries and large bonuses, guaranteed executive salaries should provide enough cash to allow some luxury, and sufficient comfort, to attract talent to the executive ranks, to promote effective responses to the dilemmas of the business in imaginative, creative, responsible and ethical ways; not maximising their own wealth at the company’s expense — allowing their financial worries, resentment and envy of those they deem more privileged to cloud their judgment. This would allow a leader to feel immediate reward for doing the right thing — exercising leadership; even though, paradoxically, it’s not and might never be evident what part he actually played. Free marketers plead for generous bankers’ bonuses to retain talent to do creative deals and to encourage the flow of capital into value-creating enterprise. Notwithstanding their insight that overregulation will kill this creative process, their linear logic implies that more is necessarily better: that progress means supplanting older with newer. But more is not always better and newer approaches have destroyed as much value as they have created — particularly into leading organisations. Moreover, during the boom, when mergers and acquisitions abounded, it would have been better to focus on the deals already done, bed them down and make sure things actually settled. Executives must always be held to account via audited financial statements, which reflect the short-term and long-term viability of the strategies and business model. Measurement provides information on what has happened, but the future can neither be analysed nor measured. Only observation, reflection on experience, listening and conversation can create the foundation that people need to trust one another to do the right thing, with individual accountability and co-ordinated, shared responsibility. This will guarantee the insight and conviction for performance management to drive a form of capitalism based on courage, imagination and sound fact. |
