Organizations Built to Foster Trust (And Our Efforts to Undermine It)

There is an inherent relationship between law and economic growth. In economic systems where the individual interacts with a larger group of people he may or may not know personally, there is a better chance that the resulting specialization will produce superior economic results whereas in systems where, in the lack of a legal system that defines the relationships between individuals, one can only work people he knows, the economy performs poorly. Companies are built with a similar idea in mind: Organizational structures and rules enable us to trust people we do not know and encourage us to work with them under the same roof to produce better results. Companies are man made constructs to foster trust among people, but in our organization design practices we do everything in our power to undermine this principle.

Take performance management systems: At the end of each year, there is the daunting period of year end evaluations which determine the bonus employees will receive. Few employees and even fewer managers are eager to go through the process for a simple reason: Few of us trust the system, but many of us are obliged to pretend otherwise. This has far reaching repercussions precluding honesty, openness, and teamwork at the work place. Ironically, these are some of the important traits we seek to cultivate by the use of performance systems.

Before starting up Heraklion Partners, we have worked with dozens of clients and have seen just about every type of organization in this region of the world. The evaluation process runs through very similar steps with minor variations anywhere one goes:

Peer reviews are conducted by people either the employee has chosen or an intelligent analysis has pre-defined. In either case, results are heavily skewed to the right where scores are spread out between 4 and 5 on a 1 to 5 scale. A score of three is usually the worst imaginable grade one can give or get on any evaluation dimension. The same is true with self-evaluation. By now, everybody knows giving oneself a score of three is far from prudent on any dimension. Hence self-evaluations are also heavily skewed towards perfect scores.

With this much concentration in peer-reviews and self-evaluation,scores obtained in these steps are hardly differentiating. What makes the main difference is the scores received from the “boss”. The many dimensions presented to the manager to fill out are laden with definitions that are loose and susceptible to very different interpretations by different managers. What makes matters worse is that managers are expected to provide an evaluation for each staff member across many dimensions, but they hardly have a chance to observe everyone in as much detail. Few managers ever keep track of the employee throughout the year, take notes, and be ready to provide examples at the end of the year during the evaluation period. Manager scores are highly subjective and perception based. Examples they provide during the feedback session pertain to the last few weeks or, at best, the last month or so. Both the manager and the subordinate know this very well. Hence, the process is hardly credible for either of them. Under such circumstances, more often than not the manager first decides, consciously or unconsciously, his favorite team member and works his way down the list. Scoring is an iterative process that justifies his original choices. If his favorite team member does not come out on top, scores are tweaked here and there to justify the choice. For evidence, one need only to look at randomly selected scores in any company: Manager evaluations are never spread across on a 1 to 5 scale. This isnot only far from the truth, but also unfair to the employee.

Because of the pile up of scores between 4 and 5 in all departments of the company, what follows is the calibration process where managers fight between each other for their favorite team members to get the highest possible final scores. This is the scene of a hot debate, reciprocal threats, and feigned sentimentality. What’s at stake is the credibility of every manager in the eyes of his team. Managers who get the most out of the bargaining table for their own are touted by their teams, others are dismissed as “weak in character”.

How results are then translated into actual bonus payments is rather blurry to the employees, which detracts further from the credibility of the whole process as if all the preceding steps were objective and trustable.

A reductionist mindset that aims at scoring human behavior quantitatively mixed with an unquestioning attitude towards management as a science rather than an art is a hazardous combination.The result is the dreaded performance evaluation and rewards process that runs more or less the same course in every company. The process is hardly credible to anyone and encourages office politics while discouraging the concepts of teamwork and mutual help that Edgar Schein emphasizes in his organizational development research work spanning more than six decades. For any employee who knows how the system runs, there is no intrinsic value in helping a colleague, even if this is the right thing to do, if there is a more pressing coming from the manager. This is unfair to the manager as well: He is boxed into a corner where he must make all the right calls for priorities, which is an impossible feat.

The performance management systems we put in place undermine the very objectives they are built to promote. Furthermore, they undermine the trust which is the critical component in holding organizations together. Contrast the systems we have today with a democratization approach lauded by an increasing number of progressive researchers and practitioners in organizational development. The idea is that teams decide who is expected to contribute what during the year and who gets what percentage of the bonus pie at the end of the year. In such a set-up, ingratiating oneself only with the “boss” at the expense of friction with fellow team members will be costly. There will be not only a pair of eyes watching and evaluating any employee. All team members will have to find ways to work with each other. In such an organization, human resources function will be elevated to a much more strategic role where they concentrate on skills development and organizational learning, which are two activities in a highly quantitative HR agenda that receive much less emphasis than they should.

The western liberal mindset that praises individual accountability has taken us this far, but as the business world gets more and more complex with disruptive technologies rendering the future even less foreseeable, collective accountability will have to be the norm. In our view, this is a higher form of organization than one based on invidiual success,  If we can achieve democratization in organization design practices by placing greater emphasis on collective wisdom rather than pointing the spotlight only on the leader, we will be able to achieve much better productivity, which was the objective why we set up companies in the first place. Perhaps it is time we switched the long tables in executive committee meeting rooms with round ones.