Plausible deniability?

That seems to be what many CEOs nowadays are going for: “Chiefs at Big Firms Often the Last to Know” (paywall), in yesterday’s Wall St. J. The argument goes

Bosses need to know what’s going on to make informed decisions, but that knowledge is dependent on what direct reports choose to tell them.

So you have lots of levels and filtering going on at every level. Pity the poor CEOs at the end of the chain.

To which I reply, “Only if they’re stupid.” Or their idea of management is to sit in their corner offices, ponder their enormous salaries, and receive the ministrations of minions.

Let me put it simply. Good leaders know what’s going on in their organizations. It’s as much a part of their orientation as what customers are buying. They employ a set of tools for doing this:

  • First, they create an organizational climate based on Einheit, which means, among many other things, that they are told the truth and those who don’t tell them the truth are quickly and visibly eliminated, and the vast majority of members of the organizations see these executions as just, needed, and overdue.
  • Good leaders have Fingerspitzengefühl. They can sense the health of the organization and, in particular, if games are being played.
  • Good leaders have networks within the organization that keep them up to date with what’s going on. I know this sounds like spying on your own people, but it’s a fact and a necessity. The caveat, as Boyd would emphasize, is that you must never take disciplinary action based on what you learn from these informal networks.
  • The last technique that I’ll recommend is similar but strange to many American corporate leaders. Good leaders place members of their staff at key points within the organization. This is done openly — everybody knows who they are and what their job is. As a quid pro quo, these “directed telescopes,” as Martin van Creveld called them, take some of the reporting burden off the line units. As he wrote in Command in War: The system of sending information from the bottom up should have been supplemented by its active pursuit from the top down (164).

Directed telescopes provide a cure for single point failure in the chain of command. They also, as van Creveld demonstrates, create an atmosphere where initiative is not only prized but demanded. The fact that this seems counterintuitive to most corporate leaders shows how far they are from creating an EBFAS-like climate.

However, the last three ideas come with a huge caveat. You have to use them within an environment that preserves and improves Einheit.

Because truly stupid people don’t survive the bureaucratic warfare to become CEOs, I can only conclude that “chiefs at big firms are often the last to know” because that’s how they want it.


7 thoughts on “Plausible deniability?

  1. The original Basel-II draft (early last decade) had a new qualitative section for calculating financial institution capital reserves (risk adjusted capital, Basel accords had long been based on straight quantitative measures) … basically sort of an ISO-9000/Sarbanes-Oxley where the top executives and board had to show they knew/understood the major end-to-end business processes. We offered to do demonstration on how the qualitative section could be implemented. However, mostly under intense pressure from US financial institutions, the new qualitative section was essentially eliminated (not necessary to show that you knew how the business operated). We periodically speculated that part of the motivation may have been they didn’t really want to expose how the business really operated.

    Possible recent example: BATS Admits CEO Lied About HFT On CNBC

  2. Chet,

    But what if this is indeed true:

    “Or their idea of management is to sit in their corner offices, ponder their enormous salaries, and receive the ministrations of minions.”

    The reason why I say this is because a lot of organizations are run this way. The people who end up making it to the top are often careerists – people who want to be, not to do, so to speak. A lot of CEOs these days don’t know what their own company’s biggest products are, which I think is an alarming situation.

    Truly stupid people as you note don’t live past the politics that makes them into top level executives. But the manipulative do. Not necessarily the best communicators, the ones with the strongest technical skills (or knowledge), nor those with the most unshakable ethics – it’s the most manipulative.



    • Chris,


      I wasn’t being facetious. I’ve come up with four laws of organizational dynamics, and number 3 is: In any organization, those who rise are those who become good at rising. You could regard it as one of nature’s recycling mechanisms, to ensure that no company stays dominant forever.


      • Chet, another question might be, is this happening on a global scale?

        Is this nature’s way to ensure that no nation stays dominant forever? That has serious implications for the long term status of the US, China, and pretty much every nation/empire that has ever been on top.

        – Chris

  3. in the financial mess there was misdirection articles about how it was risk management algorithms fault … and not the executives … then there were articles by risk managers who said that they had been directed to fiddle the inputs until it got the desired results (garbage in, garbage out).

    for public companies there has been some tendency to choose top executives that match profiles expected by wallstreet. One such scenario involves “stock buybacks” … executive compensation plan associated with stock metrics and choosing executives that go along.

    and then there is always

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