EXECUTIVES STILL STUCK ON FORMULAS FOR REWARD

Business Report  21 February, 2012

Business Report

21 February, 2012

By Jonathan Yudelowitz

Leadership is the art of contending with the dilemmas presented by the future and other people’s perceptions; neither of which can be measured, controlled or accurately predicted. Attempts to divine the future usually produce variations of the known present and project existing assumptions.

Likewise, categorising people’s characteristics fool managers into believing that they know and, therefore, can manage fellow workers. Instead they reinforce value judgments and prejudices, and prevent managers from building real relationships through personal contact.

But those with leadership acumen, the self-awareness and honesty to question their own assumptions, can trade off dilemmas as did South Africa in the early 1990s. We were not seduced by ideological "solutions", and we created a firm social and political base by reconciling the goal of a non-racial constitutional democracy, while honouring the sacrifice of the past through the Truth and Reconciliation Commission.

The leadership on all sides ensured that through effective conversation and negotiation, all parties overcame their preconceptions and ideologies, to deal with specific facts, costs and benefits – both objective and subjective. Above all, South Africans believed that this country was worth saving and this resolve influenced them and gave perspective when striking deals.

The calls for tighter regulation in the wake of the outrage at the excessive bonuses paid to investment bankers and the harm done to the world economy resulted in the unintended consequence of stifling enterprise through red tape. Such measures could have been avoided if the executives of financial institutions had faced the industry’s dilemmas. This would have improved their leadership; including their ability to trade off between the short and long term; the interests of their firm and those of the economy; risk taking and probity.

Instead, they blamed individual greed and corruption and still argue that astronomical payments are needed to retain skills because everybody else in the industry is doing it, ignoring that free enterprise thrived, albeit imperfectly, before the adoption of their remuneration practices. In spite of the erudition of distinguished economists, Wall Street and the City remain trapped in their assumptions and, despite the economic meltdown, they persist with formula-driven, output-focused rewards.

Leaders must have the time and space to resolve dilemmas by researching, reflecting, conversing and trading off. They must be able to express robust opinion and challenge one another, avoiding the judgemental bullying that forces those dealing with dilemmas into assumption-driven, simplifying and self-limiting survival tactics. Strategic conversations must be respectful and disciplined, but not so comfortable as to be collusive.

All businesses and professions have to contend with the dilemma between earning the trust of those they deal with, and withholding or presenting information that serves their interests. This applies in all circumstances and leadership must ensure that the tensions are healthy, the rules clear and the process sufficiently robust, so that the market works effectively and adds value over time.

Leaders must also believe in their decisions enough to take responsibility, but not be so attached to a particular outcome so as to be tempted to wish away an unexpected outcome, from which they could learn