New research shines the spotlight on how managers and leaders make decisions when personal gain conflicts with organisational benefits.
By Professor Danny Samson FIML
Leaders and managers typically find that decision making – be it strategic or tactical – is a core part of their professional lives. We should therefore question the extent to which those decisions benefit the organisation or the individual making the choice on its behalf. Whenever there is a discrepancy between what is good for ‘me’, and what is good for the organisation, then trade-offs invariably play a part.
Leader as selfless steward, or selfish agent
Good leaders and managers recognise that to do what is right for the organisation’s stakeholders, a combination of controls, monitoring mechanisms and incentives might be required. Take bonus systems as an example. Imperfect as they are, we see them paid in short and long-term share options as an example of attempts to improve alignment between what is good for the employee, including the CEO, and what is best for the organisation’s other stakeholders, most notably its owners. The competing view of this aspect of leadership, called stewardship, assumes selfless behaviour and the desire to maximise the outcomes for the whole organisation. Which view is closer to the truth, and if there are both types of people in leadership roles, how can we tell one from the other?
New perspectives on this age-old problem
As part of our research, we have built, tested and validated a new theoretical framework, called Multi-Stakeholder Decision Theory, that recognises the continuum between pure (self-maximising) agent and pure (selfless) steward positions. Our studies showed us that many people weigh up what is good for them personally (for example bonus, career progression), and what is good for the organisation, (such as sales and profits), when making decisions. The question is what are the relative weightings that different leaders apply?
It is interesting to note that for many decades, organisations have allocated massive amounts of resource conducting business analyses including strategic, tactical, market research, cost reduction, and quality improvement under the assumption the findings that are in the broader interests of the organisation will automatically be implemented by its leaders. But we should also consider what would happen if the decision maker is a pure agent (or close to it) and the monitoring, controls and incentives aren’t strong enough to ensure they will do right by the organisation if it conflicts with their personal interest?
Empirical evidence of this trade-off phenomenon
As part of our research we asked managers to anonymously respond to decision situations by choosing between alternatives that had either a monetary benefit to their organisation and nothing for them personally, or vice versa. Under the assumption that there would be no detection of their choice, they were asked to choose between making a profit of $1 million for their organisation (eg closing a deal) or making an amount for themselves while the organisation did not benefit at all. This revealed some scary findings. The first was that only a few individuals are ‘steward-like’. That is, they selflessly put their organisation first and stated that they worked primarily to maximise outcomes for their organisation. Our research revealed that the majority of surveyed managers were ready to forsake significant benefits for their organisation if they could get away with a personal gain instead. The extreme of this was a manager who said that $10 in his pocket was enough to sway him from making a $1 million for his firm. For many people it was one or a few thousand dollars. We found a few different processes and factors that people used to guide their trade-offs.
The first implication of our research is that, for better or worse, we cannot assume that the majority will do the right thing by their organisation, when their personal interests and gains are in conflict with organisational outcomes. Striving to achieve close alignment between organisational and personal outcomes is a key task for leaders and managers at all levels. Finding that sweet spot – where personal gain and organisational gain overlap – is all important. We would also advocate being on the lookout for agent-like behaviours and highly opportunistic types of people and decision-makers: this shows the need for measurement and motivation systems that carefully drive alignment. This thinking should apply to all decision processes from recruitment, selection and promotion choices to project team formation, and all aspects of leadership.
The full research report is available by email from Danny Samson, email@example.com
Professor Danny Samson, University of Melbourne Director, Master of enterprise & Master of Supply chain Management