That poker curve


Guess what: the main obstacle against changes that are so dearly desired in any firm is the leadership team itself, the very same team in charge of ensuring the company evolves and keeps up with its time. Let’s explore that gratuitously provocative thought together for a minute.

Not so long ago, I was discussing with managers complaining that their new shareholders – their firm had just got sold – had not released and renewed the management board. It was clear that at least a good half of them had no future in the new group, their heads now against the proverbial glass ceiling, invisible yet so concrete. Be it because of cultural misfit or absence of what it’d take to go further (eg: proficiency in the foreign language of the shareholding company or simply potential), being acquired had not added any extra possible rung on their very ladder. So what would be their incentive to actually support and help the integration in the new group since they were at the top of what they would get? After all, it could only be downhill from there!

One often heard complain from the file and rank is that executives’ doings are difficult to understand, that top managers don’t do the right thing or move too slow. While “average” employees themselves (are there such people?) feel little ability to have an impact on the organization, they also tend to fantasize on the power of the senior management: sorry guys, it is highly constrained by a political web of antagonizing influences.

To better understand this, who is this typical senior manager we are talking about? The higher the animal in the corporate food chain, the more evolutionary abilities and survival skills it has demonstrated. Those may be a higher delivery rate, a faultless loyalty to the right people, only being at the right place and time, or a strong diplomatic sense (as in: sometimes it pays to be not the best choice but just the most acceptable compromise). But come what may, our specimen has always been close to the finally validated decisions. Climbing that far into the decision tree is no random feat.

It therefore takes hard work and luck (choose your own mix) to get there and each Boardroom hides a body count somewhere to attest it. Using a strategy metaphor, one could say that obviously, the senior management market in a firm has high barriers to entry. Staying there takes efforts as it requires maintaining one’s place in a fine balance of powers, to ensure the continuity of the equilibrium. Exiting it is significantly easier.

This certainly explains why senior managers are often so risk-averse. In other words, one could draw a curve against the following two axes: level of position in the organization, and risk appetite. The result would be something gamblers know probably quite well, and so do people with big bonuses: it is easier to go all in having nothing but just few chips to lose, but bets tend to become exponentially cautious the more the “player” has accumulated.Thatpokercurve

It is in all good gangster movies: that scene in which a poor soul has lost almost everything and is ready to gamble his shirt, his house or his kids’ college money in the hope to be back in the black. He is ready to go for ever greater wagers for comparatively ever diminishing returns. Alternatively, Dan Ariely in his quite enjoyable book “The upsides of irrationality” described how subjects experience an increasing fear in an experiment designed to make them carry out simple yet challenging tasks against prizes amounting to weeks or months of average pay. Although the point differs slightly (his subject is “do higher incentives bring higher performance” and his conclusion is worth the read), what would it be if they had to actually not gain, but lose this money depending on decisions they made!

So there we are: a delicate balance to maintain to ensure one’s position, a lot to lose and a little to gain, that’s all it takes to keep a status quo. While motivation can be described as the hope to gain something by performing given actions, then motivation of senior executives in front of a requested change is something to be ascertained closely as said executive may eventually prove the main obstacle for that change.

This proves particularly acute when managers sense they have reached their highest possible role in an organization. A few applications:

  • It holds true for managers who sense their current position is the highest they’ll get. They may tend to play more and more controlling and conservative just so as to not endanger themselves. Certainly something to think of prior to changing a organization in order to prevent the action of detrimental agents to the change.
  • Think also of the impact in the case of a merger / acquisition with managers of the target, for instance: after all, what have they got to earn that they don’t already have and that’d be worth the risk? They have evolved in, and proved particularly fit for, a given culture. This culture is about to change: why should they play against the environment they learnt to play with and master, particularly if they feel there is little room for them in the new, bigger picture?

 Bottom line: here is a paradox in which managers who bloomed in a company culture and eventually reached a certain ceiling, may potentially oppose changes profitable for the firm if they feel these changes will threaten their assets. Beware poker players who collected too many chips at the gambling table, for they will play it too safe for themselves so as to protect their painfully gained treasure! They may use a number of tools available to them in that respect, be it their knowledge of that culture, or not making expected decisions benefiting the evolution of the firm to favor positive shorter term outcomes for them but detrimental to the company in the longer run (another case of agency / principal relationship).

 The difficulty here is to assess two elements: the incentive that may set these executives in motion in a positive way for the organization on the one hand. On the other, significantly harder: understand in what level of comfort these executives are and what representation of their own potential they have, along whether or not they feel up to new challenges. Since good leadership is managing by example, there might be a few lessons to derive on one’s corporate culture from that leadership test, that is if a leader does not feel up to take on a new challenge so as to protect his own position.

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This entry was posted in 2001: a leadership odyssey, That is culture for you. Bookmark the permalink.

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