Stakeholder accountability and electrical circuits

15 juni 2009

With the benefit of hindsight one can conclude that failures of businesses or even entire business systems were brought about partly by leaders being out of touch; leaders not hearing counter arguments to their thinking anymore. One can therefore argue that it is smart to organize your own opposition or –in physics terms- to create your own resistance. Although fine in principle, a simple analogy from physics shows a major pitfall of this thought.

When inserting resistances into an electrical circuit this can be done in two very different ways. By connecting resistances in series the total resistance is equal to the sum of all individual resistances. Adding resistances quickly reduces the current that runs through the circuit. Connecting resistances in parallel on the other hand leads to a situation where the total resistance is always smaller than the smallest individual resistance in the circuit. Adding another resistance will lead to a lower total resistance.

The business analogy is clear. If you take everybody’s opinion seriously and incorporate all opinions in your decisions your company will come to grinding halt. If you, however, listen to everybody in parallel (and pick those opinions most suited to your own interest) you create managers capitalism where managers always get it their way. For example: by adding many elements to the incentive structure in series, chances are you never get a bonus because it is nearly impossible to satisfy all requirements. By adding many elements in the incentive structure in parallel (which has happened a lot) you can always justify receiving a bonus.

A business cannot become accountable to more stakeholders without reducing its accountability to the existing ones. Accountable to many means accountable to none. Be careful what you wish for if you think creating more resistance (i.e. accountability to more stakeholders) is needed in the current environment.

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