The influence of systems & structures on governance

The environment needs to align

Challenge: The rules say, don’t take this risk, but your bonus depends on it. What to do?

Solution: Create clarity & understanding for decision taking and align the rewards carefully

To complement the communication and the role-modeling, the systems & structures of the organization must be coherent.

First of all, the reward and incentive structures need to align. This has started in many companies with the identification of Key Risk Takers and a bonus structure, that should incentivize them to act as guardians of their company. Similar expectations have been created for boards including in some countries severe penalties, if they don’t. Unfortunately, any structure can be “gamed” and will be, if you do not have the commitment.

Hiring and promotion needs to follow suit. Actually, more important than money are other motivators, in particular recognition. Therefore, it is very important to clarify your criteria for hiring and promotion. This is a neglected field to define the traits, skills and behaviors of the people, you expect to thrive in your organization. Even more neglected is sticking to it.

Do not forget to clarify the way “things are done” in your organization. In many organizations people will follow the existing social norms . This can be very detrimental, if those processes still follow old patterns. I particular how decisions are made, is something neither clarified, nor discussed and worst of all not consistent in many organizations. Successful leadership teams have a clear agreement how they reach decisions and the open environment to hold each other accountable to it.

There is another important aspect to decision taking. Gerd Gigerenzer calls it defensive decision taking, when a leader makes a suboptimal decision, because it is the safest course for himself. An important influence for good decision taking is to create the transparent environment, where all options can be discussed openly.

Organizations, who want to compete in today’s much more transparent and connected world, do not have a choice, but to create this risk & compliance culture based on alignment & judgement versus command & control.