Sunday, July 06, 2014

Elliott Jaques Reflects on Ethics For Management

Most readers of Elliott Jaques' work on managerial systems know that like Deming and Ackoff, he looked towards the incentives and disincentives built into systems as the primary determinant of the actions of individual operating within those systems, rather than immediately looking to place blame on the individuals themselves. He was of the opinion, based on his personal experience and observations, that systems, not people, were at the root of most business problems.

He reflected on how improvements to management systems could lead to more ethical outcomes in a paper titled "Ethics For Management," published in Management Communications Quarterly, Vol. 17, No. 1, Aug 2003.

In Ethics for Management, Jaques writes that the problems of rampant unethical behavior in organizations as seen at Enron or Arthur Anderson "are a direct reflection of deep-seated and chronic problems embedded in our governance and people-management systems and practices." Such systems, he says, often undermine the requisite practices needed to promote acceptable ethical behaviors. "Dysfunction-inducing systems like these cannot be repaired by teaching ethics," he writes. "The systems themselves need drastic changes to bring them into line with ethical requirements."

Jaques proposes solutions that are inherent to the system of management he developed which he called Requisite Organization, and which include the following elements.

1. Corporate Governance, which needs to adopt mechanisms that promote a longer-term outlook on business management.

2. Appropriate vertical structuring with optimal layers "determined by  the measured size of the top executive role" as objectively measured by time-span.

3. Define accountability for each role in which managers are "accountable for the results of the work and working behavior of their immediate subordinates," because it is managers who determine the work and guide the behavior of their direct reports. When subordinates are held accountable for their own work and bonuses are used as an additional incentive, the door is opened for the active manipulation of short-term results and "the expression of corrupt practices at the top that are driven by the same systems that drive corruption at the bottom."

4. Performance appraisal and compensation systems that pay fair differentials for differences in levels of work. Pay should be related to the difficulty of the work assigned to subordinates by their managers as measured in time span. The assumption is that when people are paid appropriately for the work they do, they do not require additional incentive systems that often unsuspectingly promote unethical, dysfunctional and corrupt behavior.

5. The selection process to fill roles is often inadequate to ensure that the person selected "is the right person of the right size for the size of the role." When people are over-promoted -- assigned to do work above their level of applied capability -- the inevitable result is an undermining of accountability in the system. People who are over promoted have a tendency to "manipulate results in order to look better than they are." Using tools discovered and developed by Jaques "to measure accurately both the size and complexity of roles, as well as the size and ability of individuals to handle complexity," will, says Jaques, "without any other changes, consistently [produce] shifts in behavior towards ethically sound practices."

The failure of CEOs and managers to properly address these aspects of their management systems, writes Jaques, contribute to corrupt behaviors in organizations by creating dysfunction and the erosion of trust.

Jaques' prognosis is that CEOs and executive leaders have a tremendous impact on the ethical behavior of their people based on the types of governance and people-management practices they have in place. Leaders need to take more seriously that impact that the systems under their direct control have on the effective functioning of their organizations to serve customers, employees, and other social and economic beneficiaries in an ethical manner.