Traditionally, businesses were created by individuals having a vision. The business founders recruited associates, some of whom were assigned the responsibility for managing aspects of the business and granted the authority to make decisions and take actions, defined by the business founder. The individual managing a segment of the business was judged, rewarded, or penalized, for the performance of the segment as impacting the overall business.
It was a simple formula, make good decisions and take appropriate actions, which benefit the business and rewards will result. If the decisions and actions did not produce positive results, there would be a penalty for the decisionmaker.
The result of the segment management arrangement was that the manager seeking greater levels of decision making, could increase their importance to the company and ability to earn greater personal benefit.
As businesses developed, got bigger and became investor-owned, management relationships changed. Committees were created and the authority of individuals restricted. Company executives sought from boards of directors and investors longer term employment relationships, with less specific periods of performance judgment. Indeed, in the case of publicly traded companies, the price performance of shares became the indicia of good or bad management decision making. Management was rewarded by awards of non-risk taking required, carried interests in the company, and stock options.
The result of the change in executive decision making was one of increased focus on career protection, which meant not being the individual responsible for a bad decision. The goal was achieved by employing the practice of consensus judgement, where no single individual was solely responsible for that which might go wrong. The result is that it is currently harder and takes longer to get decisions from most companies than was previously the case.
Decisions regarding that which is new or would result in change, would be faster, and perhaps better, if made by individuals or smaller groups within larger organizations. The designated decision makers could obtain the advice they required from different sources depending on the situation.
The decision makers would be judged on the analysis of the decisions made, not the company’s ability to implement the decisions.
In investor-owned companies, there would have to be an individual or group deciding on the acceptance and possible implementation of the decisions, depending on their significance to the overall company.
Of course, in the case of companies being financed by investors holding revenue royalties, rather than equities, management decisions regarding that which is new or required change, could be more effective. It is the investor financed, publicly trading companies, which are primarily profit margin focused. It is the quarterly Earnings Per Share which directly impacts the price of the stock and the careers of senior executives.
If growth of revenues is the primary management focus, there can be a greater corporate focus on the wants of company customers, as well as an embrace of both new ideas and change.
Arthur Lipper, Chairman arthurlipper@gmail.com
British Far East Holdings Ltd.